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Project Aid or Budget Aid? The Interests of Governments and Financial Institutions


  • Hefeker, Carsten


The paper compares different aid policy instruments and their effect on the target group. Starting from a situation where interest groups compete for the resources of the government, international financial institutions aim to change the policy outcome. They can either directly support one group or condition their financial help to the government on its policy. Apart from a normative analysis which policy is more adequate to help one group, the paper also asks what happens if the IFI is driven by bureaucratic self-interest, and whether this distort policies.

Suggested Citation

  • Hefeker, Carsten, 2005. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Proceedings of the German Development Economics Conference, Kiel 2005 19, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec05:3492

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    References listed on IDEAS

    1. Robert K. Fleck & Christopher Kilby, 2006. "World Bank Independence: A Model and Statistical Analysis of US Influence," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 224-240, May.
    2. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    3. 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.
    4. Easterly, William, 2005. "What did structural adjustment adjust?: The association of policies and growth with repeated IMF and World Bank adjustment loans," Journal of Development Economics, Elsevier, vol. 76(1), pages 1-22, February.
    5. Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-241, June.
    6. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    7. Alex Mourmouras & Wolfgang Mayer, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 02/73, International Monetary Fund.
    8. Axel Dreher & Nathan Jensen, 2003. "Independent Actor or Agent? An Empirical Analysis of the impact of US interests on IMF Conditions," International Finance 0310004, EconWPA, revised 08 Jan 2004.
    9. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
    10. 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.
    11. Carsten Hefeker & Katharina Michaelowa, 2005. "Can process conditionality enhance aid effectiveness?," Public Choice, Springer, vol. 122(1), pages 159-175, January.
    12. Tito Cordella & Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 03/88, International Monetary Fund.
    13. James M. Boughton & Alex Mourmouras, 2002. "Is Policy Ownership An Operational Concept?," IMF Working Papers 02/72, International Monetary Fund.
    14. Michaelowa, Katharina & Hefeker, Carsten, 2003. "Can Process Conditionality Enhance Aid Effectiveness? The Role of Bureaucratic Interest and Public Pressure," HWWA Discussion Papers 239, Hamburg Institute of International Economics (HWWA).
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    Cited by:

    1. Paul Clist & Alessia Isopi & Oliver Morrissey, 2012. "Selectivity on aid modality: Determinants of budget support from multilateral donors," The Review of International Organizations, Springer, vol. 7(3), pages 267-284, September.
    2. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    3. Sanjay Jain, 2007. "Project Assistance versus Budget Support: An Incentive-Theoretic Analysis of Aid Conditionality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 694-719, December.
    4. Ivo Bischoff & Frédéric Blaeschke, 2012. "Window-Dressing and Lobbying in Performance-Budgeting: a Model for the Public Sector," MAGKS Papers on Economics 201212, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Izabela Jelovac & Frieda Vandeninden, 2008. "How should donors give foreign aid? Project aid versus budget support," Post-Print halshs-00293130, HAL.
    6. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
    7. Furukawa, Mitsuaki & Takahata, Junichiro, 2013. "Is GBS Still a Preferable Aid Modality?," Working Papers 50, JICA Research Institute.

    More about this item


    aid policy; conditionality; international financial institutions; interest groups;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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