IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Aid Effectiveness and Limited Enforceable Conditionality

  • Almuth Scholl

    ()

    (Economics, Institute of Economic Policy Humboldt University Berlin)

This paper analyzes optimal foreign aid policy in a neoclassical framework with a conflict of interest between the donor and the recipient government. Aid conditionality is modelled as a limited enforceable contract. We define conditional aid policy to be self-enforcing if, at any point in time, the conditions imposed on aid funds are supportable by the threat of a permanent aid cutoff from then onward. Quantitative results show that the effectiveness of unconditional aid is low while self-enforcing conditional aid strongly stimulates the economy. However, increasing the welfare of the poor comes at a high cost: to ensure aid effectiveness, less democratic political regimes have to receive permanently larger aid funds

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.wiwi.hu-berlin.de/wpol/html/staff/Almuth/scholl2.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.wiwi.hu-berlin.de/wpol/html/staff/Almuth/scholl2.pdf [302 Found]--> http://www2.wiwi.hu-berlin.de/institute/wpol/html/staff/Almuth/scholl2.pdf). If this is indeed the case, please notify (Christian Zimmermann)


File Function: main text
Download Restriction: no

File URL: http://repec.org/sed2006/up.16460.1139655463.pdf
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 292.

as
in new window

Length:
Date of creation: 03 Dec 2006
Date of revision:
Handle: RePEc:red:sed006:292
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Brian D. Wright & Kenneth M. Kletzer, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June.
  2. Dirk Krueger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," NBER Working Papers 9202, National Bureau of Economic Research, Inc.
  3. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
  4. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  5. Albert Marcet & Ramon Marimon, 1991. "Communication, commitment and growth," Economics Working Papers 1, Department of Economics and Business, Universitat Pompeu Fabra.
  6. 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.
  7. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for Solving Dynamic Models with Occasionally Binding Constraints," NBER Technical Working Papers 0218, National Bureau of Economic Research, Inc.
  8. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
  9. Alex Mourmouras & Peter Rangazas, 2006. "Foreign Aid Policy and Sources of Poverty; A Quantitative Framework," IMF Working Papers 06/14, International Monetary Fund.
  10. Santanu Chatterjee & Georgios Sakoulis & Stephen Turnovsky, 2000. "Unilateral Capital Transfers, Public Investment, and Economic Growth," Working Papers 0008, University of Washington, Department of Economics.
  11. Giovannetti, Giorgia & Marcet, Albert & Marimon, Ramon, 1993. "Growth, capital flows and enforcement constraints : The case of Africa," European Economic Review, Elsevier, vol. 37(2-3), pages 418-425, April.
  12. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
  13. Kletzer, Kenneth, 2005. "Aid and Sanctions," Santa Cruz Department of Economics, Working Paper Series qt5hq5d9gp, Department of Economics, UC Santa Cruz.
  14. Thomas Cooley & Ramon Marimon & Vincenzo Quadrini, 2004. "Aggregate Consequences of Limited Contract Enforceability," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 817-847, August.
  15. Hansen, Henrik & Tarp, Finn, 2000. "Aid and Growth Regressions," MPRA Paper 62288, University Library of Munich, Germany.
  16. Collier, Paul & Dollar, David, 2001. "Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals," World Development, Elsevier, vol. 29(11), pages 1787-1802, November.
  17. C. S. Adam & S. A. O'Connell, 1999. "Aid, Taxation and Development in Sub-Saharan Africa," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 225-253, November.
  18. Albert Marcet & Ramon Marimon, 2011. "Recursive Contracts," CEP Discussion Papers dp1055, Centre for Economic Performance, LSE.
  19. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  20. Patrick J. Kehoe & Fabrizio Perri, 2002. "International Business Cycles with Endogenous Incomplete Markets," Econometrica, Econometric Society, vol. 70(3), pages 907-928, May.
  21. repec:dgr:rugsom:99e60 is not listed on IDEAS
  22. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
  23. Ellen R. McGrattan, 1993. "Solving the stochastic growth model with a finite element method," Staff Report 164, Federal Reserve Bank of Minneapolis.
  24. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 275-297, November.
  25. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  26. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
  27. Krueger, Dirk & Uhlig, Harald, 2004. "Competitive Risk Sharing Contracts with One-Sided Commitment," CEPR Discussion Papers 4208, C.E.P.R. Discussion Papers.
  28. Olivier Jeanne & Pierre-Olivier Gourinchas, 2005. "Capital Flows to Developing Countries: the Allocation Puzzle," 2005 Meeting Papers 240, Society for Economic Dynamics.
  29. Dollar, David & Svensson, Jakob, 1998. "What explains the success or failure of structural adjustment programs?," Policy Research Working Paper Series 1938, The World Bank.
  30. Benno J. Ndulu & Stephen A. O'Connell, 1999. "Governance and Growth in Sub-Saharan Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 41-66, Summer.
  31. Stephane Pallage & Michel Robe, 1998. "Foreign Aid and the Business Cycle," Cahiers de recherche CREFE / CREFE Working Papers 63, CREFE, Université du Québec à Montréal.
  32. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  33. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1998. "Mutual Insurance, Individual Savings and Limited Commitment," Keele Department of Economics Discussion Papers (1995-2001) 98/14, Department of Economics, Keele University.
  34. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  35. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
  36. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
  37. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  38. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  39. Murshed, S Mansoob & Sen, Somnath, 1995. "Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information," Economic Journal, Royal Economic Society, vol. 105(429), pages 498-509, March.
  40. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  41. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  42. 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.
  43. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  44. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
  45. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
  46. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  47. Paul Klein & JosÈ-VÌctor RÌos-Rull, 2003. "Time-consistent optimal fiscal policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1217-1245, November.
  48. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
  49. Pedersen, Karl R, 1996. " Aid, Investment and Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 423-38.
  50. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank.
  51. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank.
  52. Giulio Federico, 2001. "Samaritans, Rotten Kids and Policy Conditionality," Economics Series Working Papers WPS/2001-16, University of Oxford, Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed006:292. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.