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Aid and donor trust in recipient country systems

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  • Knack, Stephen

Abstract

The 2005 Paris Declaration on Aid Effectiveness sets targets for increased use by donors of recipient country systems for managing aid. The target is premised on a view that country systems are strengthened when donors trust recipients to manage aid funds, but undermined when donors manage aid through their own separate parallel systems. This study provides an analytical framework for understanding donors' decisions to trust or bypass country systems. Empirical tests are conducted using data from three OECD-DAC surveys designed to monitor progress toward Paris Declaration goals. Tests show that use of recipient country systems is positively related to (1) the donor's reputational stake in the country's development, as proxied by the donor's share of aid provided to the recipient; (2) the trustworthiness or quality of those systems, as measured by cross-country corruption indicators; and (3) donors' risk tolerance, as proxied by public support for aid provision in donor countries. Findings are robust to corrections for potential sample selection, omitted variables or endogeneity bias.

Suggested Citation

  • Knack, Stephen, 2013. "Aid and donor trust in recipient country systems," Journal of Development Economics, Elsevier, vol. 101(C), pages 316-329.
    • Handle: RePEc:eee:deveco:v:101:y:2013:i:c:p:316-329
    DOI: 10.1016/j.jdeveco.2012.12.002
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    1. Kodila-Tedika, Oasis & Khalifa, Sherif, 2020. "The Effect of Leader’s Visits on Foreign Aid," MPRA Paper 99368, University Library of Munich, Germany.
    2. Forson, Joseph Ato & Baah-Ennumh, Theresa Yabaa & Buracom, Ponlapat & Chen, Guojin & Peng, Zhen, 2014. "Causes of Corruption: Evidence from Sub-Sahara Africa," MPRA Paper 102431, University Library of Munich, Germany, revised 20 Mar 2016.
    3. Emmanuelle Auriol & Josepa Miquel-Florensa, 2019. "Taxing fragmented aid to improve aid efficiency," The Review of International Organizations, Springer, vol. 14(3), pages 453-477, September.
    4. Philip Keefer & Christopher Kilby, 2021. "Introduction to the special issue: In memoriam Stephen Knack," The Review of International Organizations, Springer, vol. 16(3), pages 473-493, July.
    5. Liya Palagashvili & Claudia R. Williamson, 2021. "Grading foreign aid agencies: Best practices across traditional and emerging donors," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 654-676, May.
    6. Forson, Joseph Ato & Buracom, Ponlapat & Chen, Guojin & Baah-Ennumh, Theresa Yabaa, 2014. "Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub-Sahara Africa," MPRA Paper 102210, University Library of Munich, Germany, revised 30 May 2016.
    7. Joseph Forson, 2015. "Corruption, EU Aid Inflows and Economic Growth in Ghana: Cointegration and Causality Analysis," Managing Intellectual Capital and Innovation for Sustainable and Inclusive Society: Managing Intellectual Capital and Innovation; Proceedings of the MakeLearn and TIIM Joint International Conference 2,, ToKnowPress.
    8. Takaaki Masaki & Bradley C. Parks, 2020. "When do performance assessments influence policy behavior? Micro-evidence from the 2014 Reform Efforts Survey," The Review of International Organizations, Springer, vol. 15(2), pages 371-408, April.
    9. Katharina Michaelowa, 2018. "Carola Betzold and Florian Weiler. 2018. Development Aid and Adaptation to Climate Change in Developing Countries (Cham, CH: Palgrave Macmillan)," The Review of International Organizations, Springer, vol. 13(4), pages 621-625, December.
    10. Allison Carnegie & Lindsay R. Dolan, 2021. "The effects of rejecting aid on recipients’ reputations: Evidence from natural disaster responses," The Review of International Organizations, Springer, vol. 16(3), pages 495-519, July.
    11. Abrams M. E. Tagem, 2023. "The dynamic effects of aid and taxes on government spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1656-1687, December.
    12. Acht, Martin & Omar Mahmoud, Toman & Thiele, Rainer, 2014. "Corrupt governments receive less bilateral aid: Governance and the delivery of foreign aid through non-government actors," Kiel Working Papers 1901, Kiel Institute for the World Economy (IfW Kiel).
    13. Mirko Heinzel & Andrea Liese, 2021. "Managing performance and winning trust: how World Bank staff shape recipient performance," The Review of International Organizations, Springer, vol. 16(3), pages 625-653, July.
    14. Stephen Knack, 2014. "Building or Bypassing Recipient Country Systems: Are Donors Defying the Paris Declaration?," Journal of Development Studies, Taylor & Francis Journals, vol. 50(6), pages 839-854, June.
    15. Émilie Caldeira & Anne-Marie Geourjon & Grégoire Rota-Graziosi, 2020. "Taxing aid: the end of a paradox?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 240-255, February.
    16. Joseph Ato Forson & Ponlapat Buracom & Guojin Chen & Theresa Yaaba Baah-Ennumh, 2017. "Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub-Sahara Africa," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 178-195, June.
    17. Willy McCourt, 2018. "Lost in translation: The World Bank and the Paris Declaration," Development Policy Review, Overseas Development Institute, vol. 36(6), pages 649-668, October.
    18. Acht, Martin & Mahmoud, Toman Omar & Thiele, Rainer, 2015. "Corrupt governments do not receive more state-to-state aid: Governance and the delivery of foreign aid through non-state actors," Journal of Development Economics, Elsevier, vol. 114(C), pages 20-33.
    19. Osman S Kiratli, 2019. "Aiding together? Europeans’ attitudes on common aid policy," European Union Politics, , vol. 20(2), pages 261-281, June.
    20. Joseph Ato Forson & Ponlapat Buracom & Theresa Yaaba Baah-Ennumh & Guojin Chen & Emmanuel Carsamer, 2015. "Corruption, EU Aid Inflows and Economic Growth in Ghana: Cointegration and Causality Analysis," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(3), September.

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    More about this item

    Keywords

    Aid effectiveness; Paris declaration; Corruption; Use of country systems;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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