IDEAS home Printed from https://ideas.repec.org/a/ucp/ecdecc/doi10.1086-671711.html
   My bibliography  Save this article

The Costs of Favoritism: Is Politically Driven Aid Less Effective?

Author

Listed:
  • Axel Dreher
  • Stephan Klasen
  • James Raymond Vreeland
  • Eric Werker

Abstract

Governments provide foreign aid for both political and economic reasons, as is now well documented. Conventional wisdom holds that political motivations lower the effectiveness of aid in promoting developmental objectives. We test this claim by focusing on a setting in which we observe "effectiveness" with some precision, using the ex post performance ratings of World Bank projects. Our measures of "political importance" are plausibly exogenous: temporary membership on the UN Security Council or the World Bank Executive Board. We find that political motivations have a detrimental effect for Security Council members only when the country already faces excessive short-term debt or debt service. This finding suggests that political influence in aid allocation may impair aid's effectiveness only when the recipient country faces a weak macroeconomic position.

Suggested Citation

  • Axel Dreher & Stephan Klasen & James Raymond Vreeland & Eric Werker, 2013. "The Costs of Favoritism: Is Politically Driven Aid Less Effective?," Economic Development and Cultural Change, University of Chicago Press, vol. 62(1), pages 157-191.
    • Handle: RePEc:ucp:ecdecc:doi:10.1086/671711
    DOI: 10.1086/671711
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/671711
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/671711
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/671711?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Canavire-Bacarreza, Gustavo & Nunnenkamp, Peter & Thiele, Rainer & Triveño, Luis, 2005. "Assessing the allocation of aid: Developmental concerns and the self-interest of donors," Kiel Working Papers 1253, Kiel Institute for the World Economy (IfW Kiel).
    2. Robert K. Fleck & Christopher Kilby, 2006. "World Bank Independence: A Model and Statistical Analysis of US Influence," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 224-240, May.
    3. Vreeland,James Raymond, 2003. "The IMF and Economic Development," Cambridge Books, Cambridge University Press, number 9780521016957.
    4. Voeten, Erik, 2005. "The Political Origins of the UN Security Council's Ability to Legitimize the Use of Force," International Organization, Cambridge University Press, vol. 59(3), pages 527-557, July.
    5. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions?," Journal of Development Economics, Elsevier, vol. 88(1), pages 1-18, January.
    6. Minoiu, Camelia & Reddy, Sanjay G., 2010. "Development aid and economic growth: A positive long-run relation," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 27-39, February.
    7. Thomas Barnebeck Andersen & Henrik Hansen & Thomas Markussen, 2006. "US politics and World Bank IDA-lending," Journal of Development Studies, Taylor & Francis Journals, vol. 42(5), pages 772-794.
    8. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 149-184.
    9. Dollar, David & Svensson, Jakob, 2000. "What Explains the Success or Failure of Structural Adjustment Programmes?," Economic Journal, Royal Economic Society, vol. 110(466), pages 894-917, October.
    10. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    11. Kilby, Christopher & Dreher, Axel, 2010. "The impact of aid on growth revisited: Do donor motives matter?," Economics Letters, Elsevier, vol. 107(3), pages 338-340, June.
    12. Dreher, Axel & Nunnenkamp, Peter & Thiele, Rainer, 2011. "Are ‘New’ Donors Different? Comparing the Allocation of Bilateral Aid Between nonDAC and DAC Donor Countries," World Development, Elsevier, vol. 39(11), pages 1950-1968.
    13. Axel Dreher & Matthew Gould & Matthew Rablen & James Vreeland, 2014. "The determinants of election to the United Nations Security Council," Public Choice, Springer, vol. 158(1), pages 51-83, January.
    14. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1203-1250.
    15. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Global horse trading: IMF loans for votes in the United Nations Security Council," European Economic Review, Elsevier, vol. 53(7), pages 742-757, October.
    16. Joseph E. Stiglitz & Shahid Yusuf, 2001. "Rethinking the East Asian Miracle," World Bank Publications - Books, The World Bank Group, number 13969, December.
    17. Kaufmann, Daniel & Wang, Yan, 1995. "Macroeconomic policies and project performance in the social sectors: A model of human capital production and evidence from LDCs," World Development, Elsevier, vol. 23(5), pages 751-765, May.
    18. Lodewijk Smets & Stephen Knack & Nadia Molenaers, 2013. "Political ideology, quality at entry and the success of economic reform programs," The Review of International Organizations, Springer, vol. 8(4), pages 447-476, December.
    19. Stone, Randall W., 2008. "The Scope of IMF Conditionality," International Organization, Cambridge University Press, vol. 62(4), pages 589-620, October.
    20. Kilby, Christopher, 2000. "Supervision and performance: the case of World Bank projects," Journal of Development Economics, Elsevier, vol. 62(1), pages 233-259, June.
    21. Hristos Doucouliagos & Martin Paldam, 2009. "The Aid Effectiveness Literature: The Sad Results Of 40 Years Of Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 433-461, July.
    22. Greene, William, 2010. "Testing hypotheses about interaction terms in nonlinear models," Economics Letters, Elsevier, vol. 107(2), pages 291-296, May.
    23. Broz, J. Lawrence, 2002. "Political System Transparency and Monetary Commitment Regimes," International Organization, Cambridge University Press, vol. 56(4), pages 861-887, October.
    24. Dunning, Thad, 2004. "Conditioning the Effects of Aid: Cold War Politics, Donor Credibility, and Democracy in Africa," International Organization, Cambridge University Press, vol. 58(2), pages 409-423, April.
    25. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 11855, December.
    26. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
    27. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    28. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    29. Terrence L. Chapman, 2007. "International Security Institutions, Domestic Politics, and Institutional Legitimacy," Journal of Conflict Resolution, Peace Science Society (International), vol. 51(1), pages 134-166, February.
    30. David Roodman, 2007. "Macro Aid Effectiveness Research: A Guide for the Perplexed," Working Papers 135, Center for Global Development.
    31. Frey, Bruno S. & Schneider, Friedrich, 1986. "Competing models of international lending activity," Journal of Development Economics, Elsevier, vol. 20(2), pages 225-245, March.
    32. Kilby, C., 1994. "World Bank-borrower relations and project supervision," Discussion Paper 1994-14, Tilburg University, Center for Economic Research.
    33. Derek Headey, 2008. "Geopolitics and the effect of foreign aid on economic growth: 1970-2001," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(2), pages 161-180.
    34. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
    35. Stone, Randall W., 2004. "The Political Economy of IMF Lending in Africa," American Political Science Review, Cambridge University Press, vol. 98(4), pages 577-591, November.
    36. Christoph Moser & Jan-Egbert Sturm, 2011. "Explaining IMF lending decisions after the Cold War," The Review of International Organizations, Springer, vol. 6(3), pages 307-340, September.
    37. Rodrik, Dani, 1995. "Why is there Multilateral Lending?," CEPR Discussion Papers 1207, C.E.P.R. Discussion Papers.
    38. Kilby, Christopher, 2009. "The political economy of conditionality: An empirical analysis of World Bank loan disbursements," Journal of Development Economics, Elsevier, vol. 89(1), pages 51-61, May.
    39. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    40. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    41. Przeworski,Adam & Alvarez,Michael E. & Cheibub,Jose Antonio & Limongi,Fernando, 2000. "Democracy and Development," Cambridge Books, Cambridge University Press, number 9780521793797.
    42. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
    43. Craig Volden & Clifford J. Carrubba, 2004. "The Formation of Oversized Coalitions in Parliamentary Democracies," American Journal of Political Science, John Wiley & Sons, vol. 48(3), pages 521-537, July.
    44. Voeten, Erik, 2001. "Outside Options and the Logic of Security Council Action," American Political Science Review, Cambridge University Press, vol. 95(4), pages 845-858, December.
    45. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 28241, December.
    46. Ashwin Kaja & Eric D. Werker, 2009. "Corporate Misgovernance at the World Bank," Harvard Business School Working Papers 09-108, Harvard Business School.
    47. Morgenthau, Hans, 1962. "A Political Theory of Foreign Aid," American Political Science Review, Cambridge University Press, vol. 56(2), pages 301-309, June.
    48. Ilyana Kuziemko & Eric Werker, 2006. "How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 905-930, October.
    49. Przeworski,Adam & Alvarez,Michael E. & Cheibub,Jose Antonio & Limongi,Fernando, 2000. "Democracy and Development," Cambridge Books, Cambridge University Press, number 9780521790321.
    50. Ashwin Kaja & Eric Werker, 2010. "Corporate Governance at the World Bank and the Dilemma of Global Governance," The World Bank Economic Review, World Bank, vol. 24(2), pages 171-198, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:got:cegedp:97 is not listed on IDEAS
    2. Axel Dreher & Vera Eichenauer & Kai Gehring & Vera Z. Eichenauer, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo.
    3. Axel Dreher & Jan-Egbert Sturm & James Raymond Vreeland, 2015. "Politics and IMF Conditionality," Journal of Conflict Resolution, Peace Science Society (International), vol. 59(1), pages 120-148, February.
    4. Kersting, Erasmus K. & Kilby, Christopher, 2016. "With a little help from my friends: Global electioneering and World Bank lending," Journal of Development Economics, Elsevier, vol. 121(C), pages 153-165.
    5. Axel Dreher & Vera Eichenauer & Kai Gehring & Vera Z. Eichenauer, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo.
    6. Axel Dreher & Matthew Gould & Matthew Rablen & James Vreeland, 2014. "The determinants of election to the United Nations Security Council," Public Choice, Springer, vol. 158(1), pages 51-83, January.
    7. Kilby, Christopher, 2013. "The political economy of project preparation: An empirical analysis of World Bank projects," Journal of Development Economics, Elsevier, vol. 105(C), pages 211-225.
    8. Tierney, Michael J. & Nielson, Daniel L. & Hawkins, Darren G. & Roberts, J. Timmons & Findley, Michael G. & Powers, Ryan M. & Parks, Bradley & Wilson, Sven E. & Hicks, Robert L., 2011. "More Dollars than Sense: Refining Our Knowledge of Development Finance Using AidData," World Development, Elsevier, vol. 39(11), pages 1891-1906.
    9. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Dierk Herzer & Stephan Klasen & Axel Dreher, 2009. "In Search for a Long-run Relationship between Aid and Growth: Pitfalls and Findings," Ibero America Institute for Econ. Research (IAI) Discussion Papers 196, Ibero-America Institute for Economic Research.
    10. Breßlein, Martin & Schmaljohann, Maya, 2013. "Surrender your market! Do the G5 countries use World Bank Trade Conditionality to promote Trade?," Working Papers 0550, University of Heidelberg, Department of Economics.
    11. Kilby, Christopher, 2015. "Assessing the impact of World Bank preparation on project outcomes," Journal of Development Economics, Elsevier, vol. 115(C), pages 111-123.
    12. Axel Dreher & James Raymond Vreeland, 2011. "Buying Votes and International Organizations," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 78, Courant Research Centre PEG.
    13. Christopher Kilby, 2012. "Assessing the contribution of donor agencies to aid effectiveness: The impact of World Bank preparation on project outcomes," Villanova School of Business Department of Economics and Statistics Working Paper Series 20, Villanova School of Business Department of Economics and Statistics.
    14. repec:got:cegedp:123 is not listed on IDEAS
    15. Broich, Tobias, 2017. "Do authoritarian regimes receive more Chinese development finance than democratic ones? Empirical evidence for Africa," China Economic Review, Elsevier, vol. 46(C), pages 180-207.
    16. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    17. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    18. Axel Dreher & Jan-Egbert Sturm, 2012. "Do the IMF and the World Bank influence voting in the UN General Assembly?," Public Choice, Springer, vol. 151(1), pages 363-397, April.
    19. James Vreeland, 2011. "Foreign aid and global governance: Buying Bretton Woods – the Swiss-bloc case," The Review of International Organizations, Springer, vol. 6(3), pages 369-391, September.
    20. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Global horse trading: IMF loans for votes in the United Nations Security Council," European Economic Review, Elsevier, vol. 53(7), pages 742-757, October.
    21. Erasmus Kersting & Christopher Kilby, 2019. "The rise of supplemental lending at the World Bank," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1655-1698, November.
    22. Bruce Bueno de Mesquita & Alastair Smith, 2010. "The Pernicious Consequences of UN Security Council Membership," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(5), pages 667-686, October.

    More about this item

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:ecdecc:doi:10.1086/671711. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/EDCC .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.