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Aid Effectiveness: The Role of the Local Elite

  • Luis Angeles
  • Kyriakos C. Neanidis

We study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries. The local elite serves as an intermediary between aid donors and aid recipients through its control of the government and major firms. The likelihood of misusing aid is large if the elite is characterized by extensive economic and political power and little concern for social groups besides itself. To determine which countries have this type of elite we use a historically determined variable: the percentage of European settlers in total population in colonial times. We provide strong empirical evidence that the level of European settlement in colonial times is negatively related to the effectiveness of foreign aid as measured in a growth-regression framework. Our results are robust to the inclusion of a wide set of alternative explanatory factors advanced in the aid effectiveness literature.

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0633.

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Date of creation: 2006
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Handle: RePEc:man:sespap:0633
Contact details of provider: Postal: Manchester M13 9PL
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Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/

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