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The Hope for Hysteresis in Foreign Aid

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Author Info
Gil S. Epstein () (Bar-Ilan University)
Ira N Gang () (Rutgers University)

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Abstract

We argue that a purpose of foreign aid is to whet the appetite of the recipient in order to bring about a long term commitment to what the donor perceives as a need, but which the recipient may rank lower down on his list of undertakings, or may be sufficiently resource constrained as to be unable to start the project. In other words, we explore the implications and conditions for success of a donor trying to affect long-term recipient policy by creating path dependence. Once the project is established, aid can be removed without reversing the process that has been set in motion. Quite simply, the donor wants its project to stick. We place a formal structure on this.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200628.

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Length: 20 pages
Date of creation: 01 Dec 2006
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Handle: RePEc:rut:rutres:200628

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Related research
Keywords: foreign aid rent seeking governance decentralization

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Find related papers by JEL classification:
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
F35 - International Economics - - International Finance - - - Foreign Aid

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  1. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November. [Downloadable!] (restricted)
  2. M. McGillvray & O. Morrissey, 2001. "Aid Illusion and Public Sector Behaviour," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 118-136, August. [Downloadable!] (restricted)
  3. Gil S. Epstein & Ira N. Gang, 2006. "Contests, NGOs, and Decentralizing Aid," Review of Development Economics, Blackwell Publishing, vol. 10(2), pages 285-296, 05. [Downloadable!] (restricted)
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  4. Zafar Iqbal, 1997. "Foreign Aid and the Public Sector: A Model of Fiscal Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129. [Downloadable!]
  5. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, Oxford University Press, vol. 12(1), pages 29-58, January.
  6. Gil S. Epstein & Ira N Gang, 2006. "Decentralizing Aid with Interested Parties," Departmental Working Papers 200629, Rutgers University, Department of Economics. [Downloadable!]
  7. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May. [Downloadable!] (restricted)
  8. Rune Jansen Hagen, 2006. "Buying Influence: Aid Fungibility in a Strategic Perspective," Review of Development Economics, Blackwell Publishing, vol. 10(2), pages 267-284, 05. [Downloadable!] (restricted)
  9. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, vol. 20(10), pages 1481-1488, October. [Downloadable!] (restricted)
  10. Ira N. Gang & Haider Ali Khan, 1999. "Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes," Empirical Economics, Springer, vol. 24(1), pages 121-134. [Downloadable!] (restricted)
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