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Aid allocation: The role of external discipline

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  • Bourguignon, François
  • Platteau, Jean-Philippe

Abstract

Using an approach that embodies an explicit tradeoff between need and governance considerations, we propose an optimal aid allocation formula. We first assume exogenous, then endogenous governance. In the former case, a central concept is need-adjusted aid effectiveness while in the second case the donor has policing instruments under the form of monitoring and sanctioning capacities. We show that external disciplining has two advantages when the donor is sensitive enough to poverty intensity: (1) to cater to poor countries to a greater extent than is possible when local governance cannot be influenced by external forces, and (2) to respond (non-perversely) to improvements in the local governance of a country by raising its aid share. In institutionally weak countries, populations should welcome wisely applied donor's discipline as a way not only to get access to financial support but also to constrain their elites to refrain from abusing their position excessively. Imposing discipline when the release of externally-provided development funds is at stake seems more acceptable than aid directed to the explicit purpose of combatting corruption.

Suggested Citation

  • Bourguignon, François & Platteau, Jean-Philippe, 2022. "Aid allocation: The role of external discipline," International Economics, Elsevier, vol. 172(C), pages 278-296.
  • Handle: RePEc:eee:inteco:v:172:y:2022:i:c:p:278-296
    DOI: 10.1016/j.inteco.2021.06.008
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    Cited by:

    1. José María Larrú & Carlos Quesada González, 2021. "Aid, Multidimensional Poverty and Growth: Reversing the Micro-Macro Paradox in Guinea, Liberia and Sierra Leone," Land, MDPI, vol. 11(1), pages 1-26, December.

    More about this item

    Keywords

    Aid effectiveness; Governance quality; Poverty aversion; Monitoring of aid use; External discipline;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

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