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

  • Dreher, Axel

    ()

    (Heidelberg University)

  • Klasen, Stephan

    ()

    (University of Göttingen)

  • Vreeland, James Raymond

    ()

    (Georgetown University)

  • Werker, Eric

    ()

    (Harvard Business School)

As is now well documented, aid is given for both political as well as economic reasons. The conventional wisdom is that politically-motivated aid is less effective in promoting developmental objectives. We examine the ex-post performance ratings of World Bank projects and generally find that projects that are potentially politically motivated – such as those granted to governments holding a non-permanent seat on the United Nations Security Council or an Executive Directorship at the World Bank – are no more likely, on average, to get a negative quality rating than other projects. When aid is given to Security Council members with higher short-term debt, however, a negative quality rating is more likely. So we find evidence that World Bank project quality suffers as a consequence of political influence only when the recipient country is economically vulnerable in the first place.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4820.

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Length: 46 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published in: Economic Development and Cultural Change, 2013, 62 (1), 157-191
Handle: RePEc:iza:izadps:dp4820
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