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The Political Economy of Foreign Aid
Abstract
In the first part of this paper we provide an overview and comparative assessment of the UK's foreign aid performance over the past 15 years. In the second part, we provide an empirical investigation of the allocation of the UK bilateral aid budget over the period 1970–81. It is concluded that UK political interests were the major determinant of aid allocation during this period with the needs of the less developed countries playing a relatively minor role.
... Wittkopf, 1972;Maizels and Nissanke, 1984). Three studies find evidence of a negative link between aid and trade (McKinlay and Little, 1978a;Bowles, 1987;McGillivray and Oczkowski, 1992). 1962, 1970 1960-61, 1963-69 Cross Section of LDCs 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 Cross Section of LDCs (excluding former colonies) Cross Section of LDCs 1971, 1980, 1988 1971 1980, 1988 1980, 1982, 1983 1986, 1987 1981, 1984, 1985 Cross Section of LDCs Gounder (1994a) Australia Yes No 1988, 19901987 Cross Section of LDCs Gounder (1994b) Australia Yes 1988, 1990 i, A ij is aid from donor j to country i and M i is total imports of i which is used as a measure of trade potential (other things remaining equal, j would export more to those countries that in general import more). ...
... Three studies find evidence of a negative link between aid and trade (McKinlay and Little, 1978a;Bowles, 1987;McGillivray and Oczkowski, 1992). 1962, 1970 1960-61, 1963-69 Cross Section of LDCs 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 1969-70 1978-80 Cross Section of LDCs (excluding former colonies) Cross Section of LDCs 1971, 1980, 1988 1971 1980, 1988 1980, 1982, 1983 1986, 1987 1981, 1984, 1985 Cross Section of LDCs Gounder (1994a) Australia Yes No 1988, 19901987 Cross Section of LDCs Gounder (1994b) Australia Yes 1988, 1990 i, A ij is aid from donor j to country i and M i is total imports of i which is used as a measure of trade potential (other things remaining equal, j would export more to those countries that in general import more). It may be believed that countries will trade most with those countries with which they have historic links. ...
... On the other hand, in the case of China -trade creates aid‖around 55% of the change of aid being a result of changes in foreign trade, the casual relation being stronger for exports. Great Britain 1980, 1982, 1983LDC sample Yes 1986, 1987Yes 1981, 1984, 1985No Gounder (1994a) Australia 1988, 1990LDC sample Yes 1987, 1989No Gounder (1994b Australia 1988,1989,1990,1991 Lloyd et al., 1998 ...
As noted in many studies of development aid there are many reasons why one might expect to observe a correlation between aid and trade flows from a donor to a particular recipient. The paper firstly presents Bulgarian participation in development cooperation to disclose the motivation for studying the relation between aid and trade. The main section summarises some insights from economic theory literature on the rationale and the potential economic gains of development assistance donors as well as the findings of a number of studies analysing the existence, direction and strength of the linkage between the dynamics and volume of development aid and international trade flows. The last section outlines the author's intentions for a future own study on this correlation.
... This study draws on the work of underdevelopment theorists and their critiques of modernisation theories and processes as its foundation. The critiques of the modernising agenda applied to colonial and post-colonial economies include: its domination and naked exploitation of developing countries (Vandenbosch, 1941; Frank, 1971; Hoogvelt, 1997); its lack of understanding and misinterpretation of history and culture (Frank, 1971; Bauer, 1991; Sanderson, 1995); its generation of insufficiency, deficiency, and low productivity resulting in a negative overall contribution to prosperity (Bauer and Yamey, 1981); its creation of economic dependency (Hoogvelt, 1997; Sanderson, 1995); a mal-development model which provided no real benefits to the developing state (George, 1988). ...
... McGillivray & Oczkowski (1991) and Gounder (1994Gounder ( , 1995a have modelled the Australian aid motivation. Other studies on bilateral and multilateral aid are those of Mosley (1985), Bowles (1987Bowles ( , 1989, Gulhati & Nallari (1988), Gang & Khan (1991), Tsuotsoplides (1991) and Grilli & Riess (1992). Lipton & Toye (1990) provide an evaluation of successes (and some undoubted failures) that foreign aid has contributed to the history of Indian development. ...
In 1984 the Jackson Report on Australia's overseas aid programme, in part, focused attention on objectives and priorities in the aid programme. There is a unique aid relationship between Australia and Papua New Guinea. This paper analyses what motivates Australia's provision of aid. The aid motivation literature addresses this issue by employing cross-section data to all recipient countries, thus imposing uniformity on them. It is argued in this study that time series analysis is required to answer the question of aid motivation. The econometric results obtained by testing the recipient need and donor interest models provide support for both. Applications of non-nested tests indicate acceptance of the recipient need model and rejection of the donor interest model.
... This approach has been 'Other early studies are of Davenport (1969), Dudley and Montmarquette (1976), Isenman (1976), McKinlay and Little (1977, 1978a, 1978b, 1979 and McKinlay (1978). The more recent studies on bilateral aid are those of Maizels and Nissanke (1984), Mosley (1985), Bowles (1987Bowles ( , 1989, Gulhati and Nallari (1988), Gang and Khan (1990), Tsoutsoplides (1991), Oczkowski (1991, 1992) and Grilli and Riess (1992). ...
After briefly surveying the existing on overseas aid motivations, some empirical results are presented for Australian bilateral aid in terms of the two competing theories in the aid literature, namely the recipient need model and the donor interest model. The empirical results for Austrlia are atypical in that there is support for both hypotheses. This is contrast to the results of previous studies of ‘large’ nation states, the United States, Britain, Germany, France and Japan, which have found support for the donor interst model but not the recipient need model. Given that the empirical results reported here are consistent with both models, this paper then proceeds to apply the relatively new tests of non-nested hypotheses to the models. The results indicate that Australia's aid program has both recipient need and donor interest concerns. I some years the recipient need motive dominates, and in other years, donor interest dominates.
Undoubtedly, the importance of different types of marketing in today's business
environment. The managers themselves do not deny the specificity of marketing
application in the different spheres of the economy. One of the most specific
applications of marketing is in the field of transport, which requires skills and
knowledge not only in marketing but also the excellent knowledge of the transport
business in its different forms and manifestations.
Applying the marketing approach to transport requires consideration of the mission
of this activity from a different angle. The traditional performance of this mission
lies in the carriage of passengers and freight. But the modern business model also
requires a wider understanding of transport and the implementation of marketing
strategies and approaches in its sphere.
Keywords: business environment, marketing, transport, competition, passengers,
freight.
JEL classification: H20, H21
The paper firstly presents Bulgarian participation in development cooperation to disclose the motivation for studying the relation between aid and trade. The main section summarizes some insights from economic theory literature on the rationale and the potential economic gains of development assistance donors as well as the findings of a number of studies analyzing the existence, direction and strength of the correlation between the dynamics and volume of development aid and international trade flows. The last section outlines the author’s intentions for a future own study on this correlation.
Italy has developed a long-dated partnership with Mozambique, where it has emerged as an actor committed to norm promotion in the fields of conflict management, debt relief, and sustainable energy cooperation. This paper challenges the dominant interpretation of such a cooperative relationship that emphasizes ideational motivations and focuses, instead, on the role of Italian investors in the sectors of infrastructure and energy and of the Italian economic diplomacy. A favorable institutional and political climate in Italy has channeled investors' demands in the policy process since the independence of Mozambique. The late institutionalization of Italian development policy, the long gestation of the reform of development policy, and the lack of clear-cut borders between the competences of foreign and development cooperation institutions have empowered business groups that shape the investment strategy of the Italian foreign ministry as actors in development policy-making. Finally, convergence of interests between Italian investors and the NGO Sant'Egidio, which ultimately led to a partnership between these actors, has increased the legitimacy of Italian foreign and development policy toward Mozambique, contributing to consolidating Italy as a norm promoter in the country.
This paper develops a prescriptive model for the inter-country allocation of aid from the UK government. The model incorporates three broad motives for allocating aid: recipient need, donor interests and absorptive capacity (the ability of recipient countries to use aid effectively). To determine each motive’s relative importance, a discrete choice experiment (DCE) involving more than 1600 members of the UK general population was conducted. Absorptive capacity is the most important motive, and recipient need and donor interests are equally but much less important. Current UK aid allocations are compared with those prescribed by the model. Some countries, including China, India and Indonesia, would receive much more if aid were allocated according to the model; other countries, including Afghanistan, Ethiopia and Pakistan, would receive much less. Cluster analysis reveals that the political parties voted for by DCE participants at the 2015 general election are, inter alia, related to their aid preferences.
This article examines the determinants of aid allocation by the European Union to its southern neighbours within the framework of the Euro-Mediterranean Partnership and the European Neighbourhood Policy. Starting from the observation that in the two periods 2002–06 and 2007–10 the European Commission committed a considerably larger amount of aid per capita to Jordan, Lebanon, Morocco and Tunisia than to Algeria, Egypt and Syria, four models regarding aid allocation are identified from the literature and EU documents: donor interest, recipient need, good governance and economic reforms. Subsequently, the hypotheses of these models are tested using a fuzzy-set qualitative comparative analysis. The article concludes that the economic reforms model proves to have the most explanatory value. The EU's aid policy in the Mediterranean has a long-term objective – the promotion of market-based reforms. In addition, a high score for control of corruption is identified as a sufficient condition for receiving a large amount of funding.
This paper examines the distribution of aid from the European Economic Community (EEC) to developing countries. The first part presents an overview of the magnitude and composition of EEC aid. Then a model of aid allocation is proposed using data from the 1975–81 period. The empirical results indicate that donor interests are more important in the aid allocation process than recipient countries' need for aid. While this result is common in studies of bilateral aid, the opposite is usually held to be true for aid from multilateral sources. The results also suggest that the interests of all EEC members are not equally served by the aid allocation process. In particular, French political interests appear to be dominant—a situation which may arise because of French control over the EEC's administrative machinery for allocating aid.
This study explores the role that Le Monde coverage plays in the allocation of French development aid. It is expected that foreign policy officials will try to match the magnitude of their actions with what they expect is the public's perception of the importance of the aid recipient. News media salience serves as an easily accessible indicator of that domestic political importance and, in the case of foreign aid, this suggests that higher levels of news coverage of a less developed country will lead to higher aid commitments. Statistical analyses of French aid commitments during the period 1986–1998 demonstrate that while the most important predictor of foreign aid is the official adoption of the French language by the aid recipient, the levels of Le Monde coverage are consistently and significantly correlated with levels of French foreign aid.
We examine the implications for the viability of multilateral cooperation of different legal principles governing how separate international agreements re- late to each other. We contrast three alternative rules: conditionality-making cooperation in one area a condition for cooperation in another; separation- forbidding sanctions in one area to be used to enforce cooperation in others; and open rules, i.e., the absence of any restriction on the patterns of cross- issue cooperation arrangements and sanctions. As an example, we focus on trade and environmental agreements. Our analysis suggests that conditional- ity is more likely to facilitate multilateral, multi-issue cooperation in situations where the environmental policy stakes are small relative to the welfare effects of trade policies; when the costs of environmental compliance are high, a con- ditionality rule can hinder multilateral cooperation. Separation can undermine cooperation by limiting punishment, but can also promote broad cooperation by making partial cooperation more difficult to sustain.
This paper briefly surveys the existing literature on the motivations of overseas aid. The emphasis is on the two competing models of recipient need and donor interest, and the paper estimates these two models using data for Australian bilateral aid. Both the recipient need model and the donor interest model are supported by the econometric analysis. This is in stark contrast to the results of other studies for “large” states, such as the United States and the United Kingdom. These prior studies show no support for the recipient need model whereas the donor interest model is supported. The atypical result for the Australian bilateral aid program requires further analysis in terms of non-nested hypotheses.
Practically all donor countries that give aid claim to do so on the basis on the recipient's good governance, but do these claims have a real impact on the allocation of aid? Are democratic, human rights-respecting, countries with low levels of corruption and military expenditures actually likely to receive more aid than other countries? Using econometric analysis, the author examines the factors that really determine the patterns of aid giving. The author analyses such examples as: Aggregate aid flows. Aid from multilateral organisations such as the EU and the UN. Aid from bilateral donors such as Germany, Japan, the US as well as Arab donors. This concise, well argued and well researched book will be a great read for students, academics and policy-makers involved in development studies, economics and international relations.
This paper shall analyze the literature on the aid geographical allocation, within the framework of the recipients' needs and donor's interest approach. These studies try to identify the different donors' patterns of aid geographical specialisation, pointing out the principal determinants of their orientations so as to evaluate their coherency with the goal of development promotion. The paper shall analyze the theoretical models of aid allocation and review some of the empirical applications of the analysis. Finally, it shall summarize the attributes and limitations of this literature, and its main empirical results. El artículo revisa la literatura sobre la asignación geográfica de la ayuda internacional, dentro del marco del enfoque de las necesidades de los receptores y los intereses del donante. Estos estudios permiten inferir los patrones de especialización espacial de los donantes e identificar los principales determinantes que gobiernan sus actuaciones, permitiendo así evaluar la coherencia de las orientaciones con el objetivo de promover el desarrollo. El artículo analiza las aportaciones que han derivado modelos económicos, teóricos, de distribución geográfica de la ayuda, y revisa algunas de las aplicaciones empíricas de este análisis. Finalmente se ofrece un balance de los principales resultados obtenidos por los estudios realizados y las limitaciones analíticas que presenta esta literatura.
The allocation of British bilateral foreign aid among developing countries is simultaneously modelled, focusing on allocations during the period 1980–87. Two aid allocation decisions are analysed using a variant of the Lee-Maddala econometric model. The first decision concerns the determination of developing country eligibility for aid, while the second concerns the amount of aid eligible countries are allocated. Given the implied two-part decision-making process, sample selection techniques are employed. It is hypothesized that British bilateral aid eligibility and amount decisions are based on Bristain's humanitarian, commercial and political interests in developing countries. Results obtained indicate that these decisions are generally consistent with each of these interests, especially those relating to the political importance of Commonwealth members.
The paper examines two issues associated with aid and fiscal policy. First, how best the conditionality behind foreign aid, sometimes non-economic, is complied with in a principal-agent framework. In a multiple task and multiple principal framework, principals are better off cooperating and making the agent's efforts more complementary. Secondly, I examine endogenous policy formation in the context of domestic politics. This involves interaction between policy makers and domestic special interest groups. Outside donors need to be aware of these processes, so that they can ultimately influence it. I examine 3 endogenous policy processes: median voter, lobbying, and a combination of political contributions as well as altruism.
This paper examines some of the issues associated with the aid donor process arising from the theory of agency or principal-agent models and endogenous policy determination. The principals may be viewed as legislators and the agents as the aid agency. In addition to adverse selection and moral hazard the paper considers intrinsic sources of motivation for agents and the trade-off between adverse selection and moral hazard. It also considers multiple task agents, and where there are many principals with divergent objectives. The principals might be better off by making the tasks more complementary and trading in their differing objectives. The paper also considers the formation of aid policy via median voter outcomes, lobbying with contributions and also in the presence of altruism. Finally, problems associated with signalling commitment to optimal policies are considered.
This paper is a study of Danish aid policy from the early 1960s to 1995. It includes (i) a review of officially stated aims and criteria, (ii) a descriptive analysis of actual behaviour in international comparative perspective, (iii) a review of the theoretical and empirical aid allocation literature, and (iv) a series of panel data regressions to further explore how Danish bilateral aid was, in actual fact, distributed country-by-country. A theoretical model explaining how the allocation process took place is also formulated. It underpins the empirical analysis from which it transpires that a two step model is a useful way of analysing Danish aid allocations. The first step is whether to select a country or not, and the second involves the decision of how much aid to commit. The empirical analysis demonstrates that Danish aid has been guided in both steps by officially stated aims and criteria in an expected and statistically significant manner although a clear Eastern and Southern Africa bias was found. Another general result is that the relative weights of the explanatory variables have varied both from year-to-year and between sub-periods.
This paper (i) traces the historical origins of foreign aid, (ii) investigates trends in the volume, composition, allocation and quality of aid flows, and (iii) reviews the empirical literature on aid allocation. The paper concludes that, historically, aid has served a multitude of objectives. For some donors, the allocation and quality of aid have been largely shaped by concern for the development needs of recipients. By contrast, the foreign aid of some larger donors has been used principally as a foreign and commercial policy tool. Yet while this particular character of aid flows may well have impaired the effectiveness of aid, there is no automatic contradiction between donor and recipient objectives. Perhaps the most important change in the aid picture is the reversal after 1992 of the historic upward trend in aid volumes. This may not be a problem when smaller aid flows are compensated by private flows, as has happened in several developing countries. Yet it may be a problem in low-income countries without access to private capital, which continue to rely on aid for financial resources. The underlying premises of donor-recipient cooperation are very different when aid resources become more limited, especially when debt service is still a factor of significance. The need to keep objectives and rationales clear turn out to be even more important.
Purpose
The purpose of this paper is to study a little researched relation: the relation from economic growth in a less developed country to the development aid it receives. Does economic growth influence donor aid allocation decisions?
Design/methodology/approach
The authors’ apply two different methodologies. First, a quantitative and systematic review is presented of the literature of 30 empirical studies of aid allocation where a growth coefficient is estimated. Second, a primary study is presented of the data using a panel of 147 countries for the period 1967‐2004.
Findings
The growth‐aid relation should be negative if humanitarian motives dominate aid allocation decisions. The result from both the meta‐analysis and the primary data analysis suggests a very small effect between lagged growth and aid allocations, with a dominating positive sign. This result appears to be driven partly by the large development banks.
Originality/value
No attempt has previously been made to summarize the literature on growth as a motive for giving aid. This paper offers the first attempt to do so, by presenting a meta‐analysis of the empirical literature, as well as analysis of the primary data.
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