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Foreign Aid and Domestic Politics Implications for Aid Selectivity

  • Hagen, Rune Jansen

    (Norwegian School of Economics and Business Administration)

The links between foreign aid and policies in developing countries have been at the forefront of the policy debate for decades. An emerging consensus touts aid selectivity as the solution to the failures of conditionality. In recent years, many recipients have implemented political reforms resulting in more democratic regimes. I show that donor influence depends on the aid budget being large enough relative to the recipient. I also demonstrate that if aid influences policies, the political equilibrium in democratic recipient countries is likely to change to the disadvantage of the political alternative favoured by the donor. This implies that aid selectivity should be applied cautiously.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 04-12.

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Date of creation: Jun 2004
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Handle: RePEc:ecl:corcae:04-12
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  1. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  2. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
  3. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  4. Torsvik, Gaute, 2005. "Foreign economic aid; should donors cooperate?," Journal of Development Economics, Elsevier, vol. 77(2), pages 503-515, August.
  5. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank.
  6. Karl Pedersen, 2001. "The Samaritan's Dilemma and the Effectiveness of Development Aid," International Tax and Public Finance, Springer, vol. 8(5), pages 693-703, November.
  7. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
  8. 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.
  9. Rune Jansen Hagen, 2006. "Buying Influence: Aid Fungibility in a Strategic Perspective," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 267-284, 05.
  10. Pedersen, Karl R, 1996. " Aid, Investment and Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 423-38.
  11. Hagen, Rune Jansen, 2006. "Samaritan agents? On the strategic delegation of aid policy," Journal of Development Economics, Elsevier, vol. 79(1), pages 249-263, February.
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