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Aid and Regulation

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Author Info
Kilby, Christopher () (Vassar College Department of Economics)

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Abstract

In recent decades, one of the objectives of international development assistance has been to encourage developing country governments to reorient their economies from highly regulated and centrally controlled to deregulated and market-based. However, poor economic performance on its own might well necessitate such a shift. Does aid from donors accelerate this process by providing additional incentives and critical resources (finance and advice)? Or do donor funds slow the retreat of the state by lessening financial crises and indirectly promoting state control (e.g., through state-run development projects)? This paper contributes to the empirical analysis of this question by examining the link between aid flows and regulatory burden. Using an instrumental variables method on panel data from 71 aid receiving countries from 1970 to 1995, estimation results support the first position. Donor funds favor more heavily regulated economies and successfully promoted deregulation. This apparent example of successful conditionality points to the importance of a more disaggregate analysis of the interaction of aid and policy in developing countries.

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Paper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 65.

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Date of creation: Nov 2004
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Handle: RePEc:vas:papers:65

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April. [Downloadable!] (restricted)
  3. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April. [Downloadable!] (restricted)
  5. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August. [Downloadable!] (restricted)
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  1. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank. [Downloadable!]
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