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Size Matters: The Impact of Aid on Institutions

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  • Bowman, Chakriya
  • Chand, Satish

Abstract

This paper proposes that aid flowing to smaller (less populous) countries has a negative impact on the quality of institutions in terms of performance and policy as opposed to that flowing to larger countries, where evidence suggests that the impacts are positive. The analysis here suggests that the level of development, the size of an economy, and the level of aid receipts matter for institutional performance as quantified by measures of economic freedom. Cross-country evidence is presented that suggests the impact of aid is damaging in small vis-.-vis large countries, and that, while aid increases economic freedom as a whole, the impact of aid on economic freedom is negative for nations with a population less than 1.4 million. This is significant for small island economies in the Pacific, where increasing amounts of overseas development assistance fund governance programmes. Case studies of Fijian economic governance initiatives are used to illustrate the difficulties encountered when donors fund institutional reform programmes in Pacific states.

Suggested Citation

  • Bowman, Chakriya & Chand, Satish, 2007. "Size Matters: The Impact of Aid on Institutions," WIDER Working Paper Series 025, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:rp2007-25
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    File URL: http://www.wider.unu.edu/sites/default/files/rp2007-25.pdf
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    Cited by:

    1. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica
      [Aid and inequality relationship. Evidence and theoretical justification]
      ," MPRA Paper 38857, University Library of Munich, Germany.
    2. Gaoussou Diarra, 2011. "Aid unpredictability and absorptive capacity: analyzing disbursement delays in Africa," Economics Bulletin, AccessEcon, vol. 31(1), pages 1004-1017.
    3. Yongzheng Yang & Hong Chen & Shiu raj Singh & Baljeet Singh, 2013. "The Pacific Speed of Growth; How Fast Can It Be and What Determines It?," IMF Working Papers 13/104, International Monetary Fund.
    4. Ibrahim Sirkeci & Jeffrey H. Cohen & Dilip Ratha, 2012. "Migration and Remittances during the Global Financial Crisis and Beyond," World Bank Publications, The World Bank, number 13092.
    5. Kumar, Ronald R., 2010. "Impact of trade openness, remittances, capital inflows & financial development on income in Vanuatu," MPRA Paper 33221, University Library of Munich, Germany.

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