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Special interest politics and aid fungibility

Author

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  • Lahiri, Sajal
  • Raimondos-Moller, Paschalis

Abstract

We develop a political-economic model of aid fungibility. A donor country gives aid to a recipient government for the benefit of a target group. However, the recipient government accepts political contributions from a lobby group not targeted by the donor and transfers a fraction of the aid to the non-target group. The size of this fraction is determined endogenously in the political equilibrium in the recipient country. We examine how the donor's behaviour affects the equilibrium, and how changes in the parameters of the model affect the total amount of aid and the proportion of it reaching the target group.
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Suggested Citation

  • Lahiri, Sajal & Raimondos-Moller, Paschalis, 1999. "Special interest politics and aid fungibility," Economics Discussion Papers 10001, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:10001
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    File URL: https://repository.essex.ac.uk/10001/
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    Cited by:

    1. is not listed on IDEAS
    2. Mr. Tito Cordella & Mr. Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 2003/088, International Monetary Fund.
    3. Carsten Hefeker, 2006. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 241-252, May.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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