Foreign Aid and Rent-Seeking

Abstract

No AccessPolicy Research Working Papers21 Jun 2013Foreign Aid and Rent-SeekingAuthors/Editors: Jakob SvenssonJakob Svenssonhttps://doi.org/10.1596/1813-9450-1880SectionsAboutPDF (1.8 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:February 1998 Why has foreign aid had so seemingly poor a macroeconomic impact in many developing countries? Is there a relationship between concessional assistance, widespread corruption, and other types of rent-seeking? To address the relationship between concessional assistance, corruption, and other types of rent-seeking activities, the author provides a simple game-theoretic rent-seeking model. Insights with interesting implications emerge from the analysis: - An increase in government revenue (from windfalls, for example, or from increased foreign aid) does not necessarily lead to the provision of more public goods and in certain circumstances may reduce it. - The mere expectation of aid may suffice to increase rent-dissipation and reduce productive public spending. But if the donor community can enter into a binding policy commitment, this result may be reversed. The author provides some preliminary empirical evidence in support of the hypothesis that windfalls and foreign aid, in countries suffering from a divided policy process, are on average associated with more extensive corruption. He finds no evidence that donors systematically allocate aid to countries with less corruption. The results accords with recent empirical findings that aid is more effective, the greater the effort to direct it to good performers. But such a regime shift may involve an aid policy that in the short run provides more assistance to countries in less need and less aid to those in most need. Enforcing such a regime shift might be difficult. This paper--a product of the Development Research Group--is part of a larger effort in the group to study the effectiveness of foreign aid. Previous bookNext book FiguresReferencesRecommendedDetailsCited ByForeign aid, oil revenues, and political accountability: Evidence from six experiments in Ghana and UgandaThe Review of International Organizations, Vol.16, No.312 November 2020The impact of foreign aid on economic development: A systematic literature review and content analysis of the top 50 most influential papersJournal of International Development, Vol.5820 April 2021Paying Them to Hate US: The Effect of U.S. Military Aid on Anti-American Terrorism, 1968-2014SSRN Electronic JournalDoes foreign aid boost energy outward foreign direct investment? Micro-evidence from Chinese firmsJOURNAL OF NATURAL RESOURCES, Vol.35, No.11The Dynamics of Ethnic Fragmentation. A Proposal for an Expanded Measurement IndexAmerican Journal of Economics and Sociology, Vol.64, No.2Can Institutions Resolve Ethnic Conflict?SSRN Electronic JournalForeign aid and rent-seekingJournal of International Economics, Vol.51, No.2When is foreign aid policy credible? Aid dependence and conditionalityJournal of Development Economics, Vol.61, No.1Foreign aid and rent-seeking View Published: November 1999 Copyright & Permissions Related RegionsAfricaRelated CountriesCzech RepublicNigeriaTimor-LesteRelated TopicsFinance and Financial Sector DevelopmentGenderHealth Nutrition and PopulationMacroeconomics and Economic GrowthPoverty ReductionSocial Protections and Labor KeywordsADVERSE IMPACTCONSUMPTIONDEVELOPMENTDEVELOPMENT ECONOMICSECONOMICS RESEARCHECONOMYEQUILIBRIUMGOODSGROWTH RATEINCENTIVESINFLUENCEINTERESTMACROECONOMIC POLICYPOLITICAL ECONOMYRENTREVENUETHEORYTRADETRADE POLICIESWELFARE PDF DownloadLoading ...

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