We argue that the tilt towards donor interests over recipient needs in aid allocation and practices may be particularly strong in new partnerships. Using the natural experiment of Eastern transition we find that commercial and strategic concerns influenced both aid flows and entry in the first half of the 1990s, but much less so later on. We also find that fractionalization increased and that early aid to the region was particularly volatile, unpredictable and tied. Our results may explain why aid to Iraq and Afghanistan has had little development impact and serve as warning for Burma and Arab Spring regimes.
Arrangements by which influential firms receive economic favors, has been documented in numerous case studies but rarely formalized or analyzed quantitatively. We offer a formal voting model in which political influence is modeled as a contract by which politicians deliver a more preferential business environment to favored firms who, in exchange, protect politicians from the political consequences of high unemployment. From this perspective, cronyism simultaneously lowers a firm’s fixed costs while raising its variable wage costs. Testing several of the implications of the model on firm-level data from 26 transition countries, we find that more influential firms face fewer administrative and regulatory obstacles and carry bloated payrolls, but they also invest and innovate less. These results do not change when using propensity-score matching to adjust for the fact that influence is not randomly assigned.
In this paper I examine the development effects of military coups. Whereas previous economic literature has primarily viewed coups as a form of broader political instability, less research has focused on its development consequences independent of the factors making coups more likely. Moreover, previous research tends to group coups together regardless of whether they overthrew autocratic or democratically-elected leaders. I first show that coups overthrowing democratically elected leaders imply a very different kind of event than those overthrowing autocratic leaders. These differences relate to the implementation of authoritarian institutions following a coup in a democracy, which I discuss in several case studies. Second, I address the endogeneity of coups by comparing the growth consequences of failed and successful coup as well as matching and panel data methods, which yield similar results. Although coups taking place in already autocratic countries show imprecise and sometimes positive effects on economic growth, in democracies their effects are distinctly detrimental to growth. When overthrowing democratic leaders, coups not only fail to promote economic reforms or stop the occurrence of economic crises, but they also have substantial negative effects across a number of standard growth-related outcomes including health, education, and investment.
Read more: https://www.hhs.se/site
This document summarizes a research paper that examines the economic development effects of coups. It finds that coups overthrowing democratic governments have distinctly negative effects on economic growth, lowering GDP per capita by 1-1.3% per year over a decade. By contrast, coups in autocratic countries show smaller and imprecise positive effects. These results are robust across different empirical methods and not explained by alternative hypotheses. Additionally, coups reversing economic reforms, increasing debt, and reducing social spending, suggesting a shift in priorities away from the public.
Arrangements by which politically connected firms receive economic favors are a common feature around the world, but little is known of the form or effects of influence in business-government relationships. We argue that influence not only brings significant privileges for selected firms, but requires firms to relinquish certain control rights in exchange for subsidies and protection. We show that, under these conditions, political influence can actually harm firm performance. Enterprise surveys from approximately 8,000 firms in 40 developing countries indicate that influential firms benefit from lower administrative and regulatory barriers (including bribe taxes), greater pricing power, and easier access to credit. But these firms also provide politically valuable benefits to incumbents through bloated payrolls and greater tax payments. These firms are also less likely to invest and innovate, and suffer from lower productivity than their non-influential counterparts. Our results highlight a potential channel by which cronyism leads to persistent underdevelopment.
This document analyzes survey data from over 40 developing countries to understand determinants of radicalism, support for violence, and participation in anti-regime actions. It finds that individuals who feel politically and economically marginalized are more likely to harbor extremist views but less likely to join collective political movements. This potentially explains why marginalized groups are difficult to mobilize in nation-wide movements, despite their attitudes. It also finds that arenas for active political participation are more likely dominated by upper-middle income groups committed to preserving the status quo. Suppressing these forms of participation may push these groups towards more radical preferences. The findings suggest the poor may be caught in a cycle of increasing self-exclusion and marginalization.
This document summarizes a presentation on the economic transition of formerly socialist economies and the development of alternative institutions. It discusses how 25 years after transition, political institutions diverged more than economic institutions. It also presents analysis showing the density of connections between Russian business and political elites increased over time, and early connections were linked to greater business success, especially in oil industries. The analysis suggests alternative institutions like personal connections filled the gap when appropriate market institutions did not develop fully.
In this paper we argue that aid effectiveness may suffer when partnerships with new regimes need to be established. We test this argument using the natural experiment of the break-up of communism in the former Eastern Bloc. We find that commercial and strategic concerns influenced both aid flows and the urgency of entry into new partnerships in the first half of the 1990s, while developmental objectives became more important only over time. These results hold up to a thorough sensitivity analysis, including using a gravity model to instrument for bilateral trade flows. We also find that aid fractionalization increased substantially, and that aid to the region was more likely to be tied, more volatile and less predictable than to aid to other recipients at the time. Overall, these results suggest that the guidelines for aid effectiveness agreed upon in the Paris Declaration are likely to be challenged by the current political transition in parts of the Arab world. Hopefully being aware of these challenges can help donors avoid making the same mistakes.
This document summarizes a study examining the characteristics and effects of political influence on firms in developing countries. The study finds that politically influential firms receive economic benefits like lower taxes and easier access to credit. However, these firms also provide benefits to politicians through maintaining higher employment levels and paying more taxes. While influential firms earn higher profits, they are less productive than non-influential firms and are less likely to invest or innovate due to restrictions on firing workers and unpredictable taxes imposed on them. Overall, the study suggests that political influence undermines firm performance and can prolong economic underdevelopment.
Arrangements by which influential firms receive economic favors, has been documented in numerous case studies but rarely formalized or analyzed quantitatively. We offer a formal voting model in which political influence is modeled as a contract by which politicians deliver a more preferential business environment to favored firms who, in exchange, protect politicians from the political consequences of high unemployment. From this perspective, cronyism simultaneously lowers a firm’s fixed costs while raising its variable wage costs. Testing several of the implications of the model on firm-level data from 26 transition countries, we find that more influential firms face fewer administrative and regulatory obstacles and carry bloated payrolls, but they also invest and innovate less. These results do not change when using propensity-score matching to adjust for the fact that influence is not randomly assigned.
In this paper I examine the development effects of military coups. Whereas previous economic literature has primarily viewed coups as a form of broader political instability, less research has focused on its development consequences independent of the factors making coups more likely. Moreover, previous research tends to group coups together regardless of whether they overthrew autocratic or democratically-elected leaders. I first show that coups overthrowing democratically elected leaders imply a very different kind of event than those overthrowing autocratic leaders. These differences relate to the implementation of authoritarian institutions following a coup in a democracy, which I discuss in several case studies. Second, I address the endogeneity of coups by comparing the growth consequences of failed and successful coup as well as matching and panel data methods, which yield similar results. Although coups taking place in already autocratic countries show imprecise and sometimes positive effects on economic growth, in democracies their effects are distinctly detrimental to growth. When overthrowing democratic leaders, coups not only fail to promote economic reforms or stop the occurrence of economic crises, but they also have substantial negative effects across a number of standard growth-related outcomes including health, education, and investment.
Read more: https://www.hhs.se/site
This document summarizes a research paper that examines the economic development effects of coups. It finds that coups overthrowing democratic governments have distinctly negative effects on economic growth, lowering GDP per capita by 1-1.3% per year over a decade. By contrast, coups in autocratic countries show smaller and imprecise positive effects. These results are robust across different empirical methods and not explained by alternative hypotheses. Additionally, coups reversing economic reforms, increasing debt, and reducing social spending, suggesting a shift in priorities away from the public.
Arrangements by which politically connected firms receive economic favors are a common feature around the world, but little is known of the form or effects of influence in business-government relationships. We argue that influence not only brings significant privileges for selected firms, but requires firms to relinquish certain control rights in exchange for subsidies and protection. We show that, under these conditions, political influence can actually harm firm performance. Enterprise surveys from approximately 8,000 firms in 40 developing countries indicate that influential firms benefit from lower administrative and regulatory barriers (including bribe taxes), greater pricing power, and easier access to credit. But these firms also provide politically valuable benefits to incumbents through bloated payrolls and greater tax payments. These firms are also less likely to invest and innovate, and suffer from lower productivity than their non-influential counterparts. Our results highlight a potential channel by which cronyism leads to persistent underdevelopment.
This document analyzes survey data from over 40 developing countries to understand determinants of radicalism, support for violence, and participation in anti-regime actions. It finds that individuals who feel politically and economically marginalized are more likely to harbor extremist views but less likely to join collective political movements. This potentially explains why marginalized groups are difficult to mobilize in nation-wide movements, despite their attitudes. It also finds that arenas for active political participation are more likely dominated by upper-middle income groups committed to preserving the status quo. Suppressing these forms of participation may push these groups towards more radical preferences. The findings suggest the poor may be caught in a cycle of increasing self-exclusion and marginalization.
This document summarizes a presentation on the economic transition of formerly socialist economies and the development of alternative institutions. It discusses how 25 years after transition, political institutions diverged more than economic institutions. It also presents analysis showing the density of connections between Russian business and political elites increased over time, and early connections were linked to greater business success, especially in oil industries. The analysis suggests alternative institutions like personal connections filled the gap when appropriate market institutions did not develop fully.
In this paper we argue that aid effectiveness may suffer when partnerships with new regimes need to be established. We test this argument using the natural experiment of the break-up of communism in the former Eastern Bloc. We find that commercial and strategic concerns influenced both aid flows and the urgency of entry into new partnerships in the first half of the 1990s, while developmental objectives became more important only over time. These results hold up to a thorough sensitivity analysis, including using a gravity model to instrument for bilateral trade flows. We also find that aid fractionalization increased substantially, and that aid to the region was more likely to be tied, more volatile and less predictable than to aid to other recipients at the time. Overall, these results suggest that the guidelines for aid effectiveness agreed upon in the Paris Declaration are likely to be challenged by the current political transition in parts of the Arab world. Hopefully being aware of these challenges can help donors avoid making the same mistakes.
This document summarizes a study examining the characteristics and effects of political influence on firms in developing countries. The study finds that politically influential firms receive economic benefits like lower taxes and easier access to credit. However, these firms also provide benefits to politicians through maintaining higher employment levels and paying more taxes. While influential firms earn higher profits, they are less productive than non-influential firms and are less likely to invest or innovate due to restrictions on firing workers and unpredictable taxes imposed on them. Overall, the study suggests that political influence undermines firm performance and can prolong economic underdevelopment.
Dictatorships do not survive by repression alone. Rather, dictatorial rule is often explained as an ― authoritarian bargain by which citizens relinquish political rights for economic security. The applicability of the authoritarian bargain to decision-making in non-democratic states, however, has not been thoroughly examined. We conceptualize this bargain as a simple game between a representative citizen and an autocrat who faces the threat of insurrection, and where economic transfers and political influence are simultaneously determined. Our model yields precise implications for the empirical patterns that are expected to exist. Tests of a system of equations with panel data comprising 80 non-democratic states between 1975 and 1999 confirm the predictions of the authoritarian-bargain thesis, with some variation across different categories of dictatorship.
This policy brief examines the timing of Turkey’s authoritarian turn using raw data measuring freedoms from the Freedom House (FH). It shows that Turkey’s authoritarian turn under the ruling AKP is not a recent phenomenon. Instead, the country’s institutional erosion – especially in terms of freedoms of expression and political pluralism – in fact began much earlier, and the losses in the earlier periods so far tend to dwarf those occurring later.
Anders Olofsgård (with A. Boschini).
Published in Journal of Development Studies.
In this paper, we test the argument that the sizeable reduction in aggregate aid levels in the 1990’s was due to the end of the Cold War. We test two different models using a dynamic econometric specification on a panel of 17 donor countries, spanning the years 1970-1997. We find aid to be positively related to military expenditures in the former Eastern bloc during the cold war, but not in the 1990’s, suggesting that the reductions in aid disbursements are driven by the disappearance of an important motive for aid. Our results also suggest that aid allocation may have become less strategic in the 1990’s.
https://www.delhipolicygroup.org/publication/policy-reports/dj-vu-in-myanmar.html - Over the past two months, Myanmar has plunged into a political crisis. Myanmar’s tentative political transition towards democracy, which started in 2010 and gained momentum after the 2015 elections, has been reversed. The military (Tatmadaw) has staged a coup d’état and arrested democratically elected leaders, including President Win Myint and State Counsellor Daw Aung San Suu Kyi.
Although there exists a vast literature on aid efficiency (the effect of aid on GDP), and that aid allocation determinants have been estimated, little is known about the minute details of aid allocation. This article investigates empirically a claim repeatedly made in the past that aid donors herd. Building upon a methodology applied to financial markets, this article finds that aid donors herd similarly to portfolio funds on financial markets. It also estimates the causes of herding and finds that political transitions towards more autocratic regimes repel donors, but that transitions towards democracy have no effect. Finally, identified causes of herding explain little of its overall level, suggesting strategic motives play an important role.
This document summarizes a research paper that studied determinants of income inequality using top income share data from 16 countries over the 20th century. The paper finds that periods of high economic growth disproportionately increase the income share of the top 1% while reducing the share of the next 9%. Financial development also increases top shares, especially in early stages of development. Government spending reduces shares for the upper middle class but not the top 1%. Higher taxes reduce top shares significantly over the long run. Trade openness has no clear effect on inequality.
Recent work on the so-called resource curse has focused on the importance of the interaction between institutional quality and resource abundance. The combination of low quality institutions and easily appropriable resources (such as oil and minerals) tend to be particularly bad for economic development. On the other hand, if institutions are good these same resources contribute more to economic growth than other types of natural wealth. While certainly pointing in the right direction this strand of literature leaves some open questions. First, it is vague on the precise channels through which institutional quality operates. Second, the empirical measures of institutions are often composite measures that arguably include measures of institutional outcomes rather than durable “rules of the game”. Using data for the period 1970-2003, this paper study the extent to which combinations of resource-types and constitutional setup determine the degree of appropriative activity in a country. Our results show that parliamentary regimes and majoritarian electoral systems are associated with less (or no) resource curse-effect than are presidential and proportional electoral systems. These effects are particularly strong in countries having much ores, metals and fuels.
By Jesper Roine (with A. Boschini and J. Pettersson), proceedings from "Meeting Global Challenges in Research Cooperation", Uppsala.
How do political elites prepare the civilian population for participation in violent conflict? We empirically investigate this question using village-level data from the Rwandan Genocide in 1994. Every Saturday before 1994, Rwandan villagers had to meet to work on community infrastructure, a practice called Umuganda. This practice was highly politicized and, in the years before the genocide, regularly used for spreading political propaganda. To establish causality, we exploit cross-sectional
variation in meeting intensity induced by exogenous weather fluctuations. We find that an additional rainy Saturday resulted in a five percent lower civilian participation rate in genocide violence. These results pass a number of indirect tests of the exclusion restriction as well as other robustness checks and placebo tests.
We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a trade-off between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds.
1.. Islamic Rule and the Emancipation of the Poor and Pious
I estimate the impact of Islamic rule on secular education and labor market outcomes with a new and unique dataset of Turkish municipalities. Using a regression discontinuity design, I compare elections where an Islamic party barely won or lost municipal mayor seats. The results show that Islamic rule has had a large positive effect on education, predominantly for women. This impact is not only larger when the opposing candidate is from a secular left-wing, instead of a right-wing party; it is also larger in poorer and more pious areas. The participation result extends to the labor market, with fewer women classified as housewives, a larger share of employed women receiving wages, and a shift in female employment towards higher-paying sectors. Part of the increased participation, especially in education, may come through investment from religious foundations, by providing facilities more tailored toward religious conservatives. Altogether, my findings stand in contrast to the stylized view that more Islamic in‡uence is invariably associated with adverse development outcomes, especially for women. One interpretation is that limits on religious expression, such as the headscarf ban in public institutions, raise barriers to entry for the poor and pious. In such environments, Islamic movements may have an advantage over secular alternatives.
2. Islam and Long-Run Development
I show new evidence on the long-run impact of Islam on economic development. Using the proximity to Mecca as an instrument for the Muslim share of a country's population, while holding geographic factors fixed, I show that Islam has had a negative long-run impact on income per capita. This result is robust to a host of geographic, demographic and historical factors, and the impact magnitude is around three times that of basic cross-sectional estimates. I also show evidence of the impact of Islam on religious influence in legal institutions and women's rights, two outcomes seen as closely associated with the presence of Islam. A larger Islamic influence has led to a larger religious influence in legal institutions and lower female participation in public institutions. But it has also had a positive impact on several measures of female health outcomes relative to men. These results stand in contrast to the view that Islam has invariably adverse consequences for all forms of women's living standards, and instead emphasizes the link between lower incomes and lower female participation in public institutions.
3. The Rise of China and the Natural Resource Curse in Africa
We produce a new empirical strategy to estimate the causal impact of selling oil to China on economic and political development, using an instrumental variables design based on China's economic rise and consequent demand for oil in interaction with the pre-existence of oil in Sub-Saharan Africa.
The document discusses the evolution of post-communist economic systems in Central and Eastern Europe and China over the past 25+ years. It argues that in Central and Eastern Europe, the collapse of communism led to a process of disintegration of the communist state apparatus and competition between networks seeking to grab power and assets, resulting in weak institutions, corruption and kleptocracy. In contrast, China's transition involved the communist party consciously replacing central planning with market forces to maintain control. Accession to the EU helped strengthen institutions in some Central European countries.
High coordination costs are often identified as the reason for the low quality of public goods available to the poor. We report findings from a unique combination of a village-randomized controlled trial and a lab-in-the-field experiment. An in-depth survey of 1,600 women before and after an intervention establishing membership-based organizations in one of the poorest districts in India shows that the presence of these groups increased villagers’ capacity to address water delivery problems, and improved access to, and quality of, water service. Public goods games with over 200 participants in a subset of control and treatment villages show that the presence of village groups increased cooperation among both members and non-members in treated villages. We find little evidence that cooperation is facilitated by more common tastes among group members. These results suggest that, in contrast to traditional community development programs, membership groups can help poor communities build social capital.
Does Islamic political control affect women's empowerment? Several countries have recently experienced Islamic parties coming to power through democratic elections. Due to strong support among religious conservatives, constituencies with Islamic rule often tend to exhibit poor women's rights. Whether this relationship reflects a causal or a spurious one has so far gone unexplored. I provide the first piece of evidence using a new and unique dataset of Turkish municipalities. In 1994, an Islamic party won multiple municipal mayor seats across the country. Using a regression discontinuity (RD) design, I compare municipalities where this Islamic party barely won or lost elections. Despite negative raw correlations, the RD results reveal that over a period of six years, Islamic rule increased female secular high school education. Corresponding effects for men are systematically smaller and less precise. In the longer run, the effect on female education remained persistent up to 17 years after and also reduced adolescent marriages. An analysis of long-run political effects of Islamic rule shows increased female political participation and an overall decrease in Islamic political preferences. The results are consistent with an explanation that emphasizes the Islamic party's effectiveness in
overcoming barriers to female entry for the poor and pious.
The document analyzes the impact of the 2008 Global Financial Crisis on individuals' trust in national political systems across 18 European countries. It finds that (1) the crisis significantly reduced political trust, with individual factors like economic satisfaction playing a bigger role than macroeconomic indicators, and (2) different countries experienced varying levels of impact, though generally trust declined more where the crisis was perceived to have been handled poorly. The analysis uses survey and economic data from before and after the crisis to construct a political trust index and measure the crisis's effects.
This policy brief covers a discussion on finance for sustainable development held during a full day conference at the Stockholm School of Economics on May 11, 2015. The event was organized jointly by the Stockholm Institute of Transition Economics (SITE) and the Swedish Ministry for Foreign Affairs, and was the fifth installment of Development Day – a yearly development policy conference. With the Millennium Development Goals (MDGs) expiring in 2015, the members of the United Nations are now in the process of defining a post-2015 development agenda. The Sustainable Development Goals (SDGs) build on the eight anti-poverty targets in the MDG but also include a renewed emphasis on environmental and social sustainability. Whatever targets or goals will be agreed upon in the end, we know for certain that reaching the objectives will require substantial financial resources, far beyond the current levels of official development assistance (ODA). To discuss this issue, the conference brought together a distinguished and experienced group of policy-oriented scholars and practitioners from government agencies, international organizations, civil society and the business community.
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
A high wire balancing act conservative voice paperGed Mirfin
A Paper entitled A High Wire Balancing Act – Reshuffles, Reform, Modernization and Policy Making in the Coalition: UKIP & Cameron’s Attempt to Overcome the Limitations of Electoral Groupthink published on the Conservative Voice Web-Site which can also be downloaded here: http://www.conservativevoice.co.uk/wp-content/uploads/2014/08/A-High-Wire-Balancing-Act-Conservative-Voice-Paper.pdf
The accompanying article Are We All the Victims of Electoral Groupthink Now? – The Death of the Middle Classes & Reshuffles, Reform, Modernization and Policy Making in the Coalition can be accessed here: http://www.conservativevoice.co.uk/category/popular/
One of the largest studies of the financial journalism industry, Gorkana's 2014 Survey of Financial Journalists looks at journalist's outlook on the economy, opinions of leading sources of news and information and how they themselves find stories.
Carried out by the Gorkana Group in collaboration with Matt Ragas, Ph.D. and Hai Tran, Ph.D. of DePaul University College of Communication, nearly 500 financial journalists responded to this survey.
The 2014 findings show that there is ongoing optimism that the economy will continue to grow. In contrast to the 2012 Survey of Financial Journalists, the 2014 survey shows that while traditional media still dominate as the most influential outlets, online sources are starting to break the stronghold.
This document discusses financial restructuring in the Organization of Eastern Caribbean States countries. It notes that as economies develop, non-bank financial institutions have begun competing with banks by offering similar retail and wholesale services. This has led to a shift away from bank dominance in financial intermediation to non-banks. The document examines this process of financial restructuring and discusses some associated policy issues regarding the development of financial systems in these countries.
Ashley Sheppard - Building the Canadian Advantage, IR-MRPAshley Sheppard
The document summarizes a study on how the Canadian government has used foreign aid to promote commercial interests abroad under the Harper government. It discusses two specific projects - the Corporate Social Responsibility Strategy and Development Finance Initiative - that illustrate this shift. The paper argues that the main objective of these programs is to advance Canadian commercial interests rather than development goals, demonstrating a lack of transparency and accountability that has reduced aid effectiveness.
Domestic resource mobilization a neglected factor in development strategyDr Lendy Spires
This document discusses the importance of focusing on domestic resource mobilization (DRM) for development strategies in sub-Saharan Africa. It argues that DRM deserves more emphasis as it offers advantages over mobilizing external resources by allowing for greater domestic policy ownership and coherence with local needs. The document provides a framework for analyzing factors that could enhance DRM in sub-Saharan Africa, such as improving financial systems, macroeconomic policies, mobilizing remittances and managing resource revenues. It aims to test the hypotheses that higher DRM can facilitate greater economic growth, poverty reduction, and policy autonomy through a series of country case studies.
Dictatorships do not survive by repression alone. Rather, dictatorial rule is often explained as an ― authoritarian bargain by which citizens relinquish political rights for economic security. The applicability of the authoritarian bargain to decision-making in non-democratic states, however, has not been thoroughly examined. We conceptualize this bargain as a simple game between a representative citizen and an autocrat who faces the threat of insurrection, and where economic transfers and political influence are simultaneously determined. Our model yields precise implications for the empirical patterns that are expected to exist. Tests of a system of equations with panel data comprising 80 non-democratic states between 1975 and 1999 confirm the predictions of the authoritarian-bargain thesis, with some variation across different categories of dictatorship.
This policy brief examines the timing of Turkey’s authoritarian turn using raw data measuring freedoms from the Freedom House (FH). It shows that Turkey’s authoritarian turn under the ruling AKP is not a recent phenomenon. Instead, the country’s institutional erosion – especially in terms of freedoms of expression and political pluralism – in fact began much earlier, and the losses in the earlier periods so far tend to dwarf those occurring later.
Anders Olofsgård (with A. Boschini).
Published in Journal of Development Studies.
In this paper, we test the argument that the sizeable reduction in aggregate aid levels in the 1990’s was due to the end of the Cold War. We test two different models using a dynamic econometric specification on a panel of 17 donor countries, spanning the years 1970-1997. We find aid to be positively related to military expenditures in the former Eastern bloc during the cold war, but not in the 1990’s, suggesting that the reductions in aid disbursements are driven by the disappearance of an important motive for aid. Our results also suggest that aid allocation may have become less strategic in the 1990’s.
https://www.delhipolicygroup.org/publication/policy-reports/dj-vu-in-myanmar.html - Over the past two months, Myanmar has plunged into a political crisis. Myanmar’s tentative political transition towards democracy, which started in 2010 and gained momentum after the 2015 elections, has been reversed. The military (Tatmadaw) has staged a coup d’état and arrested democratically elected leaders, including President Win Myint and State Counsellor Daw Aung San Suu Kyi.
Although there exists a vast literature on aid efficiency (the effect of aid on GDP), and that aid allocation determinants have been estimated, little is known about the minute details of aid allocation. This article investigates empirically a claim repeatedly made in the past that aid donors herd. Building upon a methodology applied to financial markets, this article finds that aid donors herd similarly to portfolio funds on financial markets. It also estimates the causes of herding and finds that political transitions towards more autocratic regimes repel donors, but that transitions towards democracy have no effect. Finally, identified causes of herding explain little of its overall level, suggesting strategic motives play an important role.
This document summarizes a research paper that studied determinants of income inequality using top income share data from 16 countries over the 20th century. The paper finds that periods of high economic growth disproportionately increase the income share of the top 1% while reducing the share of the next 9%. Financial development also increases top shares, especially in early stages of development. Government spending reduces shares for the upper middle class but not the top 1%. Higher taxes reduce top shares significantly over the long run. Trade openness has no clear effect on inequality.
Recent work on the so-called resource curse has focused on the importance of the interaction between institutional quality and resource abundance. The combination of low quality institutions and easily appropriable resources (such as oil and minerals) tend to be particularly bad for economic development. On the other hand, if institutions are good these same resources contribute more to economic growth than other types of natural wealth. While certainly pointing in the right direction this strand of literature leaves some open questions. First, it is vague on the precise channels through which institutional quality operates. Second, the empirical measures of institutions are often composite measures that arguably include measures of institutional outcomes rather than durable “rules of the game”. Using data for the period 1970-2003, this paper study the extent to which combinations of resource-types and constitutional setup determine the degree of appropriative activity in a country. Our results show that parliamentary regimes and majoritarian electoral systems are associated with less (or no) resource curse-effect than are presidential and proportional electoral systems. These effects are particularly strong in countries having much ores, metals and fuels.
By Jesper Roine (with A. Boschini and J. Pettersson), proceedings from "Meeting Global Challenges in Research Cooperation", Uppsala.
How do political elites prepare the civilian population for participation in violent conflict? We empirically investigate this question using village-level data from the Rwandan Genocide in 1994. Every Saturday before 1994, Rwandan villagers had to meet to work on community infrastructure, a practice called Umuganda. This practice was highly politicized and, in the years before the genocide, regularly used for spreading political propaganda. To establish causality, we exploit cross-sectional
variation in meeting intensity induced by exogenous weather fluctuations. We find that an additional rainy Saturday resulted in a five percent lower civilian participation rate in genocide violence. These results pass a number of indirect tests of the exclusion restriction as well as other robustness checks and placebo tests.
We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a trade-off between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds.
1.. Islamic Rule and the Emancipation of the Poor and Pious
I estimate the impact of Islamic rule on secular education and labor market outcomes with a new and unique dataset of Turkish municipalities. Using a regression discontinuity design, I compare elections where an Islamic party barely won or lost municipal mayor seats. The results show that Islamic rule has had a large positive effect on education, predominantly for women. This impact is not only larger when the opposing candidate is from a secular left-wing, instead of a right-wing party; it is also larger in poorer and more pious areas. The participation result extends to the labor market, with fewer women classified as housewives, a larger share of employed women receiving wages, and a shift in female employment towards higher-paying sectors. Part of the increased participation, especially in education, may come through investment from religious foundations, by providing facilities more tailored toward religious conservatives. Altogether, my findings stand in contrast to the stylized view that more Islamic in‡uence is invariably associated with adverse development outcomes, especially for women. One interpretation is that limits on religious expression, such as the headscarf ban in public institutions, raise barriers to entry for the poor and pious. In such environments, Islamic movements may have an advantage over secular alternatives.
2. Islam and Long-Run Development
I show new evidence on the long-run impact of Islam on economic development. Using the proximity to Mecca as an instrument for the Muslim share of a country's population, while holding geographic factors fixed, I show that Islam has had a negative long-run impact on income per capita. This result is robust to a host of geographic, demographic and historical factors, and the impact magnitude is around three times that of basic cross-sectional estimates. I also show evidence of the impact of Islam on religious influence in legal institutions and women's rights, two outcomes seen as closely associated with the presence of Islam. A larger Islamic influence has led to a larger religious influence in legal institutions and lower female participation in public institutions. But it has also had a positive impact on several measures of female health outcomes relative to men. These results stand in contrast to the view that Islam has invariably adverse consequences for all forms of women's living standards, and instead emphasizes the link between lower incomes and lower female participation in public institutions.
3. The Rise of China and the Natural Resource Curse in Africa
We produce a new empirical strategy to estimate the causal impact of selling oil to China on economic and political development, using an instrumental variables design based on China's economic rise and consequent demand for oil in interaction with the pre-existence of oil in Sub-Saharan Africa.
The document discusses the evolution of post-communist economic systems in Central and Eastern Europe and China over the past 25+ years. It argues that in Central and Eastern Europe, the collapse of communism led to a process of disintegration of the communist state apparatus and competition between networks seeking to grab power and assets, resulting in weak institutions, corruption and kleptocracy. In contrast, China's transition involved the communist party consciously replacing central planning with market forces to maintain control. Accession to the EU helped strengthen institutions in some Central European countries.
High coordination costs are often identified as the reason for the low quality of public goods available to the poor. We report findings from a unique combination of a village-randomized controlled trial and a lab-in-the-field experiment. An in-depth survey of 1,600 women before and after an intervention establishing membership-based organizations in one of the poorest districts in India shows that the presence of these groups increased villagers’ capacity to address water delivery problems, and improved access to, and quality of, water service. Public goods games with over 200 participants in a subset of control and treatment villages show that the presence of village groups increased cooperation among both members and non-members in treated villages. We find little evidence that cooperation is facilitated by more common tastes among group members. These results suggest that, in contrast to traditional community development programs, membership groups can help poor communities build social capital.
Does Islamic political control affect women's empowerment? Several countries have recently experienced Islamic parties coming to power through democratic elections. Due to strong support among religious conservatives, constituencies with Islamic rule often tend to exhibit poor women's rights. Whether this relationship reflects a causal or a spurious one has so far gone unexplored. I provide the first piece of evidence using a new and unique dataset of Turkish municipalities. In 1994, an Islamic party won multiple municipal mayor seats across the country. Using a regression discontinuity (RD) design, I compare municipalities where this Islamic party barely won or lost elections. Despite negative raw correlations, the RD results reveal that over a period of six years, Islamic rule increased female secular high school education. Corresponding effects for men are systematically smaller and less precise. In the longer run, the effect on female education remained persistent up to 17 years after and also reduced adolescent marriages. An analysis of long-run political effects of Islamic rule shows increased female political participation and an overall decrease in Islamic political preferences. The results are consistent with an explanation that emphasizes the Islamic party's effectiveness in
overcoming barriers to female entry for the poor and pious.
The document analyzes the impact of the 2008 Global Financial Crisis on individuals' trust in national political systems across 18 European countries. It finds that (1) the crisis significantly reduced political trust, with individual factors like economic satisfaction playing a bigger role than macroeconomic indicators, and (2) different countries experienced varying levels of impact, though generally trust declined more where the crisis was perceived to have been handled poorly. The analysis uses survey and economic data from before and after the crisis to construct a political trust index and measure the crisis's effects.
This policy brief covers a discussion on finance for sustainable development held during a full day conference at the Stockholm School of Economics on May 11, 2015. The event was organized jointly by the Stockholm Institute of Transition Economics (SITE) and the Swedish Ministry for Foreign Affairs, and was the fifth installment of Development Day – a yearly development policy conference. With the Millennium Development Goals (MDGs) expiring in 2015, the members of the United Nations are now in the process of defining a post-2015 development agenda. The Sustainable Development Goals (SDGs) build on the eight anti-poverty targets in the MDG but also include a renewed emphasis on environmental and social sustainability. Whatever targets or goals will be agreed upon in the end, we know for certain that reaching the objectives will require substantial financial resources, far beyond the current levels of official development assistance (ODA). To discuss this issue, the conference brought together a distinguished and experienced group of policy-oriented scholars and practitioners from government agencies, international organizations, civil society and the business community.
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
A high wire balancing act conservative voice paperGed Mirfin
A Paper entitled A High Wire Balancing Act – Reshuffles, Reform, Modernization and Policy Making in the Coalition: UKIP & Cameron’s Attempt to Overcome the Limitations of Electoral Groupthink published on the Conservative Voice Web-Site which can also be downloaded here: http://www.conservativevoice.co.uk/wp-content/uploads/2014/08/A-High-Wire-Balancing-Act-Conservative-Voice-Paper.pdf
The accompanying article Are We All the Victims of Electoral Groupthink Now? – The Death of the Middle Classes & Reshuffles, Reform, Modernization and Policy Making in the Coalition can be accessed here: http://www.conservativevoice.co.uk/category/popular/
One of the largest studies of the financial journalism industry, Gorkana's 2014 Survey of Financial Journalists looks at journalist's outlook on the economy, opinions of leading sources of news and information and how they themselves find stories.
Carried out by the Gorkana Group in collaboration with Matt Ragas, Ph.D. and Hai Tran, Ph.D. of DePaul University College of Communication, nearly 500 financial journalists responded to this survey.
The 2014 findings show that there is ongoing optimism that the economy will continue to grow. In contrast to the 2012 Survey of Financial Journalists, the 2014 survey shows that while traditional media still dominate as the most influential outlets, online sources are starting to break the stronghold.
This document discusses financial restructuring in the Organization of Eastern Caribbean States countries. It notes that as economies develop, non-bank financial institutions have begun competing with banks by offering similar retail and wholesale services. This has led to a shift away from bank dominance in financial intermediation to non-banks. The document examines this process of financial restructuring and discusses some associated policy issues regarding the development of financial systems in these countries.
Ashley Sheppard - Building the Canadian Advantage, IR-MRPAshley Sheppard
The document summarizes a study on how the Canadian government has used foreign aid to promote commercial interests abroad under the Harper government. It discusses two specific projects - the Corporate Social Responsibility Strategy and Development Finance Initiative - that illustrate this shift. The paper argues that the main objective of these programs is to advance Canadian commercial interests rather than development goals, demonstrating a lack of transparency and accountability that has reduced aid effectiveness.
Domestic resource mobilization a neglected factor in development strategyDr Lendy Spires
This document discusses the importance of focusing on domestic resource mobilization (DRM) for development strategies in sub-Saharan Africa. It argues that DRM deserves more emphasis as it offers advantages over mobilizing external resources by allowing for greater domestic policy ownership and coherence with local needs. The document provides a framework for analyzing factors that could enhance DRM in sub-Saharan Africa, such as improving financial systems, macroeconomic policies, mobilizing remittances and managing resource revenues. It aims to test the hypotheses that higher DRM can facilitate greater economic growth, poverty reduction, and policy autonomy through a series of country case studies.
I os and peer pressure an examination of the development assistance committee...Dr Lendy Spires
This document discusses a study examining whether international organizations can influence the foreign policies of member states. Specifically, it analyzes the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD), which uses a formal peer review process to assess member states' development aid programs. Through archival research and interviews, the study models the interaction between DAC and member states like the UK. It aims to determine if peer pressure is an effective tool for DAC to influence aid policies in line with agreements like the Paris Declaration.
This document discusses the Principled Aid Index, which analyzes how 29 donors allocate official development assistance. The key findings are:
1) Luxembourg tops the index, followed by the UK and Sweden, while the Slovak Republic ranks last. Donors are becoming slightly more principled on average due to improved scores on needs-based allocation and global cooperation.
2) However, there is a worrying deterioration in donors' commitment to public spiritedness, as reflected by declining average scores.
3) More generous donors, with higher ODA/GNI ratios, tend to be ranked higher and thus more principled in their aid allocation.
This document presents the findings of the Principled Aid Index, which measures how 29 donors allocate official development assistance to advance their long-term national interests in a principled way. Key findings include:
1) Luxembourg tops the index, followed by the UK and Sweden, while the Slovak Republic ranks last. Donors are becoming more principled on average due to improved performance on needs-based allocation and global cooperation.
2) However, there is a worrying deterioration in donors' commitment to public spiritedness, as reflected by declining average scores.
3) More generous donors, with higher ODA/GNI ratios, tend to be ranked higher and thus more principled in their aid allocation
New Actors and Global Development Cooperation Dr Lendy Spires
The global financial crisis has reinforced trends of shifting wealth and power in the world economy. One expression of this changing global context is the rising role of so-called ›new‹ actors as development assistance providers. The ›new actors‹ term is a convenient (though not entirely accurate) label to describe a heterogeneous group of state and non-state actors that OECD-DAC donors increasingly recognise as interesting partners for engagement. For many partner countries these new actors have provided a welcome source of additional development finance. In the context of this work programme, the global development players China, India, and Brazil, regional players such as Mexico and South Africa, private foundations and corporate philanthropies have all been included in this group. Yet the current landscape of development cooperation also extends beyond these actors to include states as diverse as Chile, Colombia, Egypt, Indonesia, Turkey, and Vietnam, to name a few examples.1 One starting assumption in this work package was that an improved knowledge base about the priorities and activities of new actors in developing countries is a prerequisite for designing more effective European strategies for engagement. Drawing on the pub-lications from the work package, this paper paints a general portrait of the development cooperation efforts of new actors and highlights issues to guide thinking on how to respond to their growing presence. The Development Cooperation Engagement of the New Actors As the salience of new actors has risen on the global development agenda, efforts to estimate the scale of resources committed to development cooperation have also in-creased. The attention given to particular actors is not necessarily always related to the volume of development financing they provide.
This document discusses geopolitics and their potential impact on investments. It includes interviews with experts Marko Papic, Kevin Hebner, and Todd Mattina. Papic discusses the rise of populism globally and implications for trade. A multi-polar world with more independent states could increase risks of conflict and instability. Hebner and Mattina note geopolitical risks are hard to forecast but diversification helps reduce risk. Specific catalysts for international investments include currency shifts, fiscal policy changes, and emerging market recoveries. Long-term themes include secular stagnation, technology's impact, and China's economic rebalancing.
This paper discusses the interactions between political and legal institutions, property rights protection, and their implications for financial development. It finds that common law legal heritage is not necessarily more suitable than civil law for financial development. Types of institutional and market reforms are more relevant to increasing financial intermediation than differences in legal systems. The paper proposes ways to increase intermediation through institutional, information, and banking reforms. It argues that understanding how property rights, contracting rights, and formal and informal institutions affect financial contracting can provide insights into improving access to finance in developing countries.
uicfise 8f Tea Par . A coherent and strong national leadership is an .pdfarchiespink
uicfise 8f Tea Par . A coherent and strong national leadership is an important A large population
is an important . The rise and fall of the Soviet military power shows that . A state is a political
entity with is one in which the national government is granted the preponderance of power under
the state\'s constitution- for example Japan ·According to the idea of“ \", states should possess
more than right to rule such as the wherewithal to provide political goods for its citizens Quasi-
states, which are political units that possess some, but not all. of the basic characteristics of a
state. Which of the following is one of them? ]
Solution
1.
To say we are in interesting times would be an understatement, the recent general election has
plunged us further into uncertainty. Putting aside the rights and wrongs of holding the election
and the unfolding political alliances it’s important to remember that on the ground people and
businesses are struggling to keep up with the changes and the potential impact. Most of us get on
with our lives despite the national turmoil. But the effect of that turmoil is to dampen investment
and decision making; which slows growth. Latest research by the Institute of Directors highlights
that 92% of respondents see current uncertainty over the make-up of the government as a
concern. There has been a negative swing of 34 points in confidence in the UK economy from
their last survey in May. This has serious implications for business growth, as how we interpret
and perceive our future, our risk aversion and our need to have good information to make
decisions can stifle our ability to act.
The national situation we are seeing unfold, in terms of lack of clear majority for either side, and
regardless of eventual party outcome, will be a government relying on a brokered deal to get
things through parliament which will exacerbate this uncertainty and the impact of Brexit fears.
So where can we look to for leadership?
A recent blog by the World Economic Forum has highlighted that in many places the nation state
is looking outdated, and even dangerous. Where power is too centralised and focussed on
national interests, policy is disengaged from the local, from the day to day lives of people and
businesses. The populist movement we are seeing globally is a reaction to this; dissatisfaction
with the way countries are governed creates turbulence in the current way of thinking and doing,
and challenges political structures. Shifting of decision making to a more local level eases
tensions as people see change locally and impact can be seen quicker. Cities are therefore
emerging as key leadership nodes, galvanising action and responding to local need. Focussing on
regional economic growth and giving powers and funding to local delivery structures to improve
growth can help alleviate the social and political tensions that have led us down this unfortunate
path to instability.
Half of humanity lives in cities and urbanization is set.
Major transformations are challenging existing development approaches. New partnerships are needed to address issues like climate change, inequality, and sustainable development. Development is non-linear and countries require flexible support along their journey. Official development assistance remains important but must work with other resources and adjust to countries' changing needs. Partnerships themselves are also changing with more actors involved. Development cooperation's role is to ensure all partners align behind global goals and public goods. New approaches and narratives are needed to leave no one behind.
This document provides a September 2017 investment commentary from Anthony Lombardi. It discusses the firm's investment philosophy of focusing on a 3-5 year horizon and not reacting to short-term market events. Recent geopolitical and weather events are mentioned. The portfolio positioning is reviewed, with some cash deployed this quarter into industrial stocks. The portfolio performance for the quarter outpaced benchmarks, driven by stock selection, and characteristics remain attractive on valuation metrics.
This thesis examines the Trans-Pacific Partnership (TPP) agreement and argues that through the TPP, the United States seeks to expand two key international regimes - intellectual property and investor-state dispute settlements. The thesis provides historical context on free trade agreements and reviews relevant literature on NAFTA and the TPP. It then analyzes how U.S. negotiations of the TPP aim to broaden intellectual property and investor-state dispute settlement provisions beyond existing norms. The expansion of these regimes has implications for geopolitics in the Asia-Pacific region and emerging trends of U.S. hegemony.
CIHA Blog Conference PP PresententationIsrael Laizer
This document summarizes the key arguments made in a research paper about the impact of foreign aid and faith-based organizations (FBOs) on African governance. It argues that foreign aid and FBOs have historically undermined African sovereignty and governance in several ways: (1) They have weakened accountability by pressuring countries to adopt certain reforms; (2) They have weakened democracy; and (3) They have increased exploitation and undermined the rule of law. Regarding FBOs specifically, the document notes they have undermined governance through their nature of operations, historical roles in Africa, lack of autonomy due to reliance on Western donors, and failure to prioritize governance. It concludes that while FBOs provide important services
Politics and Power in International Development - The potential role of Political Economy Analysis
Geert Laporte, Deputy Director, ECDPM
VIDC, Vienna, 30 January 2014
The document discusses the concepts of détente, escalation, and quagmires during the Cold War. It notes that détente was a strategy used by the US to implement containment by engaging with the Soviets to manage competition and reduce tensions. However, it failed partly due to the US abandoning diplomacy while still seeking arms agreements. Escalation was seen as dangerous if uncontrolled, but could be used to pressure opponents, while quagmires resulted from overcommitting militarily to interventions and being unable to withdraw. Political decision-making, not the tools themselves, determines outcomes like escalation and quagmires.
This study investigates the determinants of external debt in Sub-Saharan Africa from 1975 to 2012 using pooled OLS and fixed effects models. The study focuses on the effect of political variables and institutions on debt accumulation. The results show that democratically administered governments accumulate more debt than autocratic governments. Governments with parliamentary systems accumulate more debt than presidential systems, while constrained executives accumulate less debt. Countries with more open electoral systems also accumulate less debt. Countries receiving debt relief accumulated less debt than those that did not receive relief. Political institutions are therefore important in explaining debt levels in Sub-Saharan Africa.
The Impact of Foreign Aid on African EconomiesYihuneEphrem
This paper provides a comprehensive analysis of the impact of foreign aid on African economies. Drawing upon a wide range of scholarly research, empirical evidence, and case studies, it examines the potential benefits, challenges, and effectiveness of foreign aid in promoting economic development in Africa. The study highlights the historical context and evolution of foreign aid in Africa, explores the potential benefits of aid in areas such as infrastructure development and human capital investment, and discusses the challenges and criticisms surrounding aid, including issues of aid dependency and effectiveness. Additionally, the paper analyzes the relationship between aid and economic growth, emphasizing the importance of good governance and policy frameworks. It also discusses the shift towards sustainable development approaches and the role of trade and investment in fostering long-term economic growth. The paper concludes by highlighting the need for further research and evidence-based policy interventions to navigate the complex dynamics of foreign aid and maximize its positive impact on African economies.
This document summarizes a research paper that examines trends in rentier incomes and financial crises in some OECD countries between 1960 and 2000. The paper finds that rentier income shares, which include profits from financial firms and interest income, increased significantly in most countries starting in the early 1980s, coinciding with the rise of neoliberal monetary policies. However, rentier shares declined in some developing countries that experienced financial crises. The paper also finds little evidence that increases in rentier incomes came at the expense of non-financial corporate profits, suggesting no conflict between these groups.
Similar to Aid Effectiveness in Times of Political Change: Lessons from the Post-Communist Transition (20)
Presented by Anastasia Luzgina during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Erlend Bollman Bjørtvedt during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Dzimtry Kruk during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Lev Lvovskiy during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Chloé Le Coq, Professor of Economics, University of Paris-Panthéon-Assas, Economics and Law Research Center (CRED), during SITE 2023 Development Day conference.
This year’s SITE Development Day conference will focus on the Russian war on Ukraine. We will discuss the situation in Ukraine and neighbouring countries, how to finance and organize financial support within the EU and within Sweden, and how to deal with the current energy crisis.
This year’s SITE Development Day conference will focus on the Russian war on Ukraine. We will discuss the situation in Ukraine and neighbouring countries, how to finance and organize financial support within the EU and within Sweden, and how to deal with the current energy crisis.
The document provides an agenda for an event titled "#AcademicsStandWithUkraine" being held on December 6, 2022 in Stockholm, Sweden. The day-long event will feature discussions on supporting Ukraine, the EU response, and the energy crisis, with panels including representatives from Ukrainian and European universities and organizations, as well as the Swedish and European governments. Speakers will discuss fiscal policy in Ukraine, Swedish and EU support for Ukraine, and the regional impact of the war.
The (Ce)² Workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
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The Rise of Generative AI in Finance: Reshaping the Industry with Synthetic DataChampak Jhagmag
In this presentation, we will explore the rise of generative AI in finance and its potential to reshape the industry. We will discuss how generative AI can be used to develop new products, combat fraud, and revolutionize risk management. Finally, we will address some of the ethical considerations and challenges associated with this powerful technology.
1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
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Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
G20 summit held in India. Proper presentation for G20 summit
Aid Effectiveness in Times of Political Change: Lessons from the Post-Communist Transition
1. Aid Effectiveness in Times of Political Change: Lessons from
the Post-Communist Transition
Emmanuel Frot∗
Anders Olofsg˚ard†
Maria Perrotta Berlin‡
October 21, 2013
Abstract
We argue that the tilt towards donor interests over recipient needs in aid allocation and
practices may be particularly strong in new partnerships. Using the natural experiment of
Eastern transition we find that commercial and strategic concerns influenced both aid flows and
entry in the first half of the 1990s, but much less so later on. We also find that fractionalization
increased and that early aid to the region was particularly volatile, unpredictable and tied. Our
results may explain why aid to Iraq and Afghanistan has had little development impact and
serve as warning for Burma and Arab Spring regimes.
1 Introduction
The global development architecture has changed substantially during the last 10 years. Donor
countries outside of the OECD have grown more important, non-state actors such as global NGOs
and philanthropists have proliferated, and many aid recipients have also become donors in their
own right (Kharas, 2011). At the same time, there has been political turnover in many recipient
∗Microeconomix, 5 rue du Quatre Septembre, 75 002 Paris, France; SITE, SSE, P.O. Box 6501, SE-113 83
Stockholm, Sweden. Email: emmanuel.frot@microeconomix.fr.
†SITE, SSE, P.O. Box 6501, SE-113 83 Stockholm, Sweden. Email: anders.olofsgard@hhs.se.
‡SITE, SSE, P.O. Box 6501, SE-113 83 Stockholm, Sweden. Email: maria.perrotta@hhs.se. Tel: +46 8 7369690.
Fax: +46 8 316422
1
2. Aid Effectiveness in Times of Political Change
countries, most dramatically recently in the Middle East and North Africa (MENA) region. New
regimes have come to power, political elites have changed and competition for economic rents has
become more open. Altogether this means that many new partnerships between donors and recip-
ients have been established, and often in a setting in which the political and economic future of
recipient countries is uncertain. In this paper we argue that the salience of general foreign policy
interests in times of political transition can diminish the role of aid as an instrument to foster
development. In particular, commercial and strategic interests may dominate early on in a rela-
tionship, and aid may largely be allocated based on the desire to establish commercial connections
and fostering ideological and military allies. Beyond allocation this may also influence aid practices
in a way that goes against what is currently deemed best practices. Ambitions to stop aid frag-
mentation, to respect ownership and reduce aid volatility and unpredictability - as expressed in the
Paris Declaration and Accra Agenda for Action - may be frustrated in the rush to establish new
political connections and influence the future direction of recipient countries.
A current case in point are the events unfolding in the MENA region. The Arab Spring has
naturally attracted enormous attention, with Western countries offering foreign aid for governments
pursuing democratic reforms and liberalizing their economies.1
At the same time, policy towards
this region is also guided by other priorities, such as commercial ties (in particular with resource
rich countries such as Libya), security concerns and fear of mass-migration. There is also a battle
for influence in the region, with oil-rich Gulf states supporting a more religiously conservative,
authoritarian and inward looking model. The question is to what extent the broader foreign policy
interests will completely determine aid policy or if there will remain room for a development focus,
and whether the commitment to effective aid practices agreed upon in the Paris Declaration and
the subsequent High-Level meetings will be upheld.
How these different objectives will shape western aid policy in the MENA region is too early
to judge. Instead we focus in this paper on the historical case of Central and Eastern Europe
(CEEC) and the Commonwealth of Independent States (CIS) in the early years of their transition
towards market economies. Also then western donors stood ready to offer foreign aid in support of
economic and political development, but strategic and commercial interests were in the mix as well.
2
3. Aid Effectiveness in Times of Political Change
The future path of Russia was uncertain, pushing Western Europe to quickly embrace the Eastern
and Central European countries in order to secure their loyalty. Russia, Ukraine, Belarus and
Kazakhstan had nuclear arms, and countries such as Russia, Poland, Czechoslovakia and Ukraine
were perceived as having great commercial potential. Despite the common denominator of being
part of the Eastern Block, these countries varied substantially in terms of strategic importance,
commercial potential, and levels of economic development and poverty. The sudden opening up of
these countries therefore serves as a natural experiment to investigate the early motivation behind
aid partnerships and how it has changed over time. In particular, by looking at the allocation
of aid across recipients, how that allocation has changed over time, and the urgency with which
donors entered certain markets, we get a sense of the role of strategic and commercial interests
relative to that of fostering development and alleviating poverty over time. We can also, though
more tentatively due to limited data, look at some aspects of aid practices. For instance, we look
at what happened to aid fragmentation in the early 1990s, and whether aid to CEEC and CIS was
different from aid to other recipient countries in respects such as volatility, tying and predictability.
The paper is organized as follows. In the next section we offer a discussion of the related
literature. In section 3 we look at aid allocation to CIS and CEEC countries in the years 1990
to 1995, and how it compares to the allocation to other recipients at the time. In section 4 we
look at trends over a longer time period, showing how aid allocation to the region changed with
the maturity of relationships between donors and recipients. Section 5 addresses entry decisions
looking at the speed of entry into CIS and CEEC countries. In section 6 we report on the sensitivity
analysis of our main results on aid allocation, and in section 7 we look at some measures of aid
practices directly related to the objectives laid out in the Paris declaration. Finally, we conclude
in section 8.
2 Literature Review
In this section we discuss the most relevant parts of the rather extensive literature on aid motivation,
allocation and effectiveness. Our paper builds on this literature but also makes a rather specific
3
4. Aid Effectiveness in Times of Political Change
contribution by emphasizing that aid motivation, and thereby also most likely its effectiveness at
promoting development in the receiving countries, may change over time as partnerships mature.
Very little has been written about the evolution of development partnerships over time. Some
studies have illustrated how the emergence of sudden strategic concerns can lead to a dramatic
increase in aid, or how events like the end of the Cold War can shift donor priorities and leverage
more generally (Fleck and Kilby, 2010; Boschini and Olofsg˚ard, 2007). The only paper we know
of that explicitly identifies a systematic difference between early and mature partnerships is Frot
(2009), who shows how aid quantities depend critically on the length of the partnership. The impact
on the predicted level of aid from entering a partnership roughly seven years later is equivalent to the
effect of having a GDP per capita level around USD 5 000 higher. Hence, this illustrates a significant
difference between early and mature relationships, but it does not discuss how motivation behind
aid may vary depending on the maturity of the relationship.2
To our knowledge, our study is the
first to address this in a systematic way. The quantitative analysis allows us to compare the relative
importance of different coexisting motivations and especially how this relative importance changed
over time.
(a) Aid Regimes
The social science literature on foreign aid regimes contrasts two main schools, the international
political realist perspective and the liberal idealist perspective (sometimes referred to as a Wilsonian
perspective, or as humane internationalism).3
The first perspective focuses on states as single actors
and emphasizes economic power and military strength as the main motivation for all foreign policy,
foreign aid included. This perspective leaves little room for development in poor countries as the
ultimate objective, instead the need to feign altruistic motives makes aid an inefficient instrument
for the ultimate objective to buy political support and commercial advantages (Morgenthau, 1962).
In McKinley and Little (1979) the realist perspective is referred to as the donor interest model,
contrasted against the recipient need model, a terminology used in much of the literature that
followed, and also by us in what follows.
4
5. Aid Effectiveness in Times of Political Change
The realist perspective found much support during the days of the cold war and its implications
where quite straightforward: give more aid in times of international tension and focus on countries
that are ideological and military allies and/or in which there are substantial commercial interests
primarily with respect to trade and investments (McKinley and Little, 1979; Schraeder et al., 1998;
Lancaster, 2008).
The liberal idealist perspective portraits a more complex model of policy making. Foreign
policy is here influenced by different political forces within the donor country, such as special
interest groups, political parties and institutions of the state, but also more generally ideas or
worldviews influenced by culture, religion and ideology (Lancaster, 2008). The liberal tradition
also emphasizes that foreign policy often reflects domestic policy, suggesting a linkage between
domestic welfare policies and a more development-focused foreign aid agenda (Lumsdaine, 1993;
Therien and Noel, 2000). The idealist perspective is associated with humane internationalism,
which stresses the responsibility to assist poor countries, a belief that a more just world is in the
interests of all, and that this is not in conflict with donor countries’ own economic interests (Stokke,
1989). This thus corresponds to the recipient need model in the terminology of McKinley and Little
(1979).
The end of the Cold War left more room to use foreign aid to promote recipient country de-
velopment, but also meant that a main motivation for aid disappeared, causing a substantial drop
in aid levels (Boschini and Olofsg˚ard, 2007; Hook et al., 1996). Even during the Cold War, both
donor interests and recipient needs mattered, but from 1990 the relative weight on recipient needs
is generally regarded as increasing (Meernik et al., 1998; Hook et al., 1996), though the ”war on
terror” meant a partial reversal at least for US policy (Fleck and Kilby, 2010). The picture is
somewhat complicated, though, by the introduction of new explicit objectives of foreign aid such as
democracy promotion, environmental protection, and fighting corruption. It is not obvious how to
position these objectives in the domestic interests and recipient need space. Democracy certainly
carries the potential to increase the welfare of recipient country citizens, but it may also be a way
to foster recipient countries into the image of western donor countries in the battle for geo-political
influence. Environmental protection can similarly increase the welfare of local residents, but ef-
5
6. Aid Effectiveness in Times of Political Change
forts to reduce global warming through interventions in developing countries can be perceived as
self-serving.
Of particular relevance for our purpose, two main implications of the literature above emerge.
First, foreign aid policy may reflect both donor interests and recipient needs. Second, the relative
importance of the two can vary over time and across partnerships depending on for instance the
geo-political context, shifting values and relative influences in domestic politics, commercial oppor-
tunities and level of deprivation. The existing literature has pointed to the the end of the cold
war, the start of the war on terror, political change in donor countries and humanitarian crises, but
noone has so far in a systematic way studied the difference between new and mature partnerships.
So why should strategic and commercial interests play a more significant role early on in a part-
nership? What we argue is that realist politics captured by strategic and commercial relationships
typically involve competition with other potential donors. In such competition there is a clear ‘first
mover advantage’: commercial gains from being the first to establish trade contacts or first to gain
exploration rights, or strategic gains from being first to establish political connections with new
regimes. There are several historical cases in which global powers have had conflicting interests in
the future path of aid recipient countries. Western donors versus the Soviet Union during the Cold
War has already been mentioned, but think also about Western donors versus Russia in regards to
other members of the Commonwealth of Independent States (CIS) in the 2000s, or Western donors
versus the Gulf countries in regards to the current situation in the Middle East and North Africa
region. In these cases, the realist perspective holds a lot of sway and foreign aid has been used to
gain allies and bolster the power of those with supportive views (Carothers, 2006)4
. A similar logic
applies to commercial relationships. An early foothold into a market with commercial potential can
give an investor or an exporter an important advantage relative to its competitors, since it is gener-
ally costly to change investors and trade partners once the relationships have been established. To
gain an edge in that competition, donor countries sometimes provide aid as an additional sweetener
to seal the deal for a domestic company (Schraeder et al., 1998).
Humanitarian concerns, on the other hand, are a public good and largely non-competitive
(at least not excludable). As such, there is less urgency to establish relationships with countries
6
7. Aid Effectiveness in Times of Political Change
targeted primarily for humanitarian reasons. Rather the opposite: as with all public goods there
is a tendency for under-provision of resources since the full cost of the expenditures, but only part
of the benefits, are internalized (Stone, 2010). By holding out, donors can also learn from other
donors’ mistakes operating in the environment of a particular recipient, and thereby increase the
effectiveness of their effort. Over time, as strategic and trade relationships become more solid, aid
becomes a less essential instrument to achieve commercial benefits and ideological loyalty. Certain
strategic concerns, such as nuclear containment in the former Soviet Union and access to military
bases in countries neighboring conflict zones, are temporary in nature. Trade relationships become
more dependent on actual commercial value as they mature, and alternative ways to maintain the
relationship evolve. Aid on the other hand remains an essential and primary tool for promotion of
economic development and humanitarian support. We therefore expect that, over time, the liberal
idealist perspective fits better with actual policies.
(b) The empirics of aid allocation
There is by now a quite sizeable empirical literature trying to estimate the relative role of donor
interests and recipient needs. Most of this literature uses a ‘revealed preferences’ argument and
studies the allocation of aid across recipients with different characteristics to derive an idea of what
donors really prioritize. The early literature, such as McKinlay and Little (1977); Maizels and
Nissanke (1984), found primarily support for a realist perspective. It is true that aid is often found
to decrease with an increase in income, but the economic significance of poverty is typically trumped
by strategic and commercial concerns. For instance, Alesina and Dollar (2000) find that measures
of historical ties (former colonial status), strategic alliances (as measured by the correlation of
voting records in the UN general assembly) and the Israel-Palestine conflict have a much greater
explanatory power and larger economic effects on the margin.
Other proxies of strategic importance that have been used in the literature, and found to be
significant, include arms imports (Hess, 1989; Maizels and Nissanke, 1984), arms expenditures
(Schraeder et al., 1998), and membership in the UN Security Council (Kuziemko and Werker, 2006;
Dreher et al., 2009). Studies on the impact of the Cold War (Boschini and Olofsg˚ard, 2007) and
7
8. Aid Effectiveness in Times of Political Change
the ‘war on terror’ (Fleck and Kilby, 2010) suggest that strategic motives have been of particular
importance in certain time periods.
Commercial interests, in particular captured by trade flows or exports, have also been shown
to be important in several studies. Berth´elemy and Tichit (2004) find that trade flows became a
more important determinant of aid allocation after the end of the Cold War. Neumayer (2003)
finds that exports have a significant and positive effect on bilateral aid for most major bilateral
donors. Finally, some studies have also investigated the impact of geographical distance between
donors and recipients, arguing that certain donors can have a particular interest in supporting a
neighboring region for strategic and/or commercial reasons. The US has been shown to favor Latin
America, Japan East Asia, Australia and New Zealand the Pacific nations, and Germany, Austria
and Switzerland their neighbors to the near East or South (Neumayer, 2003).
(c) Aid effectiveness and the Paris Declaration
Keeping the different objectives of aid in mind, it is still the case that the literature on aid
effectiveness deals with the effect of aid on economic growth or other aspects of recipient country
welfare (Boone, 1996; Burnside and Dollar, 2000; Rajan and Subramanian, 2008). It is beyond the
scope of this paper to review this literature at length, but commercial and strategic motivations
can affect aid effectiveness as defined both directly and indirectly. They have a direct effect if
they imply that aid does not flow to the countries or sectors in which it is most likely to have
an impact on development, if they undermine aid conditionality, and if they help incompetent and
corrupt regimes stay in power. Stone (2010) finds that the development impact of aid depends on its
motivation, and argues that this at least partially has to do with the credibility of aid conditionality.
If aid is motivated by commercial interests, conditions on economic and political reforms will not
carry much clout, and it is no secret that nations of strategic importance have received large flows
of aid despite deplorable human rights records in the ages of the Cold War and the war on terror.
This is especially relevant for EU donors in their strategy to offer ‘more for more’ to their southern
neighbors. In the end, if aid becomes dominated by commercial interests, stronger conditions on
paper will mean nothing. If enforcing conditionality goes against the interests of the donors, it
8
9. Aid Effectiveness in Times of Political Change
will not be credible. Collier and Dollar (2002) compare actual aid allocation with a model of
efficient aid allocation emphasizing the role of proper economic policies and need. They argue that
a reallocation based on where aid is most likely to contribute to development could lift 50 million
more individuals above the poverty line.
There can also be indirect effects in the form of deteriorating aid practices. In the Paris Declara-
tion (2005) donors and recipients defined an agenda for aid effectiveness around five core principles
(ownership, alignment, harmonization, results and mutual accountability).5
The stated objective
is to lay out a practical, action-oriented roadmap to improve the quality of aid and its impact
on development. The agenda says nothing about aid allocation, but the incentives for donors to
adhere to the aid practices outlined should depend on the underlying motives. As emphasized by
Knack and Eubank (2009, p.7): ”[...W]hen bilateral donors use aid to advance diplomatic or com-
mercial objectives, incentives to rely on their own parallel systems for aid delivery will be further
aggravated. For example, using their own procurement rules will likely advantage donor-country
contractors”. Commercial interests may also increase pressure for tying aid, and aid may become
more fractionalised and volatile as donors rush into new partnerships, eager to be relevant.
The Paris Declaration has also put together a monitoring system to assess progress towards
the targets outlined, using survey responses from donors and recipients. In most cases, the results
are quite sobering. For example, a study by the OECD (2011) finds that only one of thirteen
targets had been met by 2010. Knack et al. (2010), Easterly and Williamson (2011) and Birdsall
and Kharas (2010) also build a number of different indicators following the stated objectives of
the agenda, creating a ranking of donors according to their performance along these indicators.
Other studies have focused on motivating and supporting policy action. For example, Bigsten and
Tengstam (2011) quantify the gains that can be made through the full implementation of the Paris
Declaration by the EU members. Frot (2009) studies a simple reform that would drastically reduce
fragmentation by eliminating ”small” partnerships, although leaving unaffected donors’ aid budgets
and developing countries receipts. Knack and Eubank (2009) focus on what explains the variation
in the use of country systems by donors. All in all, this literature provides criteria and in some cases
explicit indicators to evaluate the quality of aid practices, in accordance to what donors themselves
9
10. Aid Effectiveness in Times of Political Change
have deemed desirable and agreed upon from a development perspective. We draw on this literature
to provide approximative indicators of the quality of aid practices for the period of time and the
set of countries we are interested in.
In the next section, we start by identifying which factors seem to have been the most important
for donors at the time of establishing new aid partnerships for the case of CIS and CEEC countries.
3 Aid to CIS and CEEC from 1990 to 1995
The end of communism in the former Eastern Bloc suddenly opened up a new set of low and middle
income countries for western aid. These countries varied substantially in levels of development,
strategic importance and commercial potential. In this sense, the fall of the Berlin Wall constitutes
almost a unique natural experiment to test how the relative weight of donor interests versus recipient
needs may be different in the beginning of a partnership compared to the later period.
We first estimate a parsimonious aid allocation model for the universe of aid-recipient countries
in the years 1990 to 1995, using a CIS-CEEC group interaction.6
Some parts of aid flows to the
region in the early goings were explicitly strategic, such as military aid for nuclear disarmament.
We ask, instead, whether aid that officially is disbursed for purposes of development and used
at the discretion of the recipients is also correlated with strategic and commercial motives. We
therefore use Country Programmable Aid (CPA) as our dependent variable, rather than Official
Development Assistance (ODA), to better capture the portions of aid expenditures over which
the recipient countries actually do have some authority (Benn et al., 2010). CPA excludes from
ODA debt relief, humanitarian aid, in-donor costs and aid from local governments, core funding to
international NGOs, aid through secondary agencies, ODA equity investments and aid which is not
possible to allocate by country.7
However, we have also replicated our results using ODA as the
dependent variable. Since CPA is the narrowest definition of development aid, we expect a stronger
focus on strategic and commercial interests when looking at the ODA flows instead. This is indeed
what we find. All results are available in the online appendix.
To capture need we rely primarily on income per capita, measured in purchasing power parity
10
11. Aid Effectiveness in Times of Political Change
terms and in logarithms to reduce the impact of outliers, and disasters which measures the number
of natural, biological or technological disasters that the country experienced during the previous
year.8
One explicit objective of many donors for aid to CEEC and CIS at the time was to support
a transition to democracy (Carothers, 2006; Heckelman, 2010). We therefore include the level of
democracy using the Polity indicator from the Polity IV project. As discussed above, it is not
obvious how to classify such motivation along the axes of donor interests versus recipient needs,
so we refrain from a strong position on this. Colonial status is included to reflect donor interest
in maintaining influence over former colonies, and it is measured as a dummy that takes on the
value of 1 for all former western colonies. To capture commercial interests, which we in line with
the literature classify as donor interests, we control for trade volumes between each recipient and
the aggregate of donors, measured as total export and import flows over GDP.9
Finally, the log of
population size is included as a control variable to capture the well-known fact that more populous
countries tend to get more aid in total but less in per capita terms.
The standard in the aid allocation literature is to use the log of total aid as the dependent
variable, and a linear estimator such as the OLS, with or without fixed effects. The drawbacks of
this approach are that observations receiving no aid are dropped unless some ad hoc alteration is
done to the data, and calculations of predicted values are complicated by an additive term. Instead
it has been recommended (Ai and Norton, 2000; Santos Silva and Tenreyro, 2006) to use a Poisson
model with the absolute level of aid as the dependent variable and robust standard errors.10
The main argument we are interested in testing is whether donors identify countries that will
be of particular commercial and strategic importance, and then use aid as one of potentially many
instruments to further their interests for the future in that set of countries. Commercial potential
and strategic importance are generally not changing from year to year, but depend on more slow
moving variables such as geography, size, military capacity, stock of human capital and historical
circumstances. It follows that to test our arguments we should primarily rely on cross-country
variation in the data. We have too few cross-country observations to solely rely on the between
variation, though, so we pool our data using both cross-country and time series variation throughout
but cluster our error terms by country. In some of our specifications we take averages for a few
11
12. Aid Effectiveness in Times of Political Change
years to reduce the impact of measurement errors and more random yearly variation.11
Column (1) of Table 1 shows the results from the Poisson regression on aid, with a dummy
for CEEC and CIS countries included linearly and interacted with all independent variables. As
expected, aid increases with population size. No other factor has a significant impact in the control
group, but some have a significantly different impact in the CEEC-CIS. In particular the effect
of trade is positive and significant in the CIS and CEEC countries, suggesting a more prominent
role of commercial interests. The coefficient on the Polity index turns from negative to positive,
indicating that aid may have been used more proactively in the CIS and CEEC group to encourage
countries that early on reformed their political institutions. Finally, the regional dummy itself is
negative and significant suggesting that aid to these countries on average was lower than to other
recipients with similar levels of income, democracy, and so on.
The results in column (1) highlight average differences across the two groups, but there is
also substantial individual variation within groups. If we compare expected aid inflows – derived
multiplying the estimated coefficients by the average value of the independent variables for each
country – to the actual average aid inflows during the same years12
, we notice in particular two
things: i) among CIS countries, Russia, Ukraine and Belarus get much more aid than expected, while
the countries in the Caucasus and Central Asia much less; ii) countries closer to the core of Western
Europe seem to be getting more aid than countries further away. Given these observations, we first
rerun the regression in column (1) but only with the sample of CEEC-CIS countries (presented to
simplify comparisons in column (2)), and then in column (3) we include two variables that may
explain the patterns from above: a dummy for nations in possession of nuclear arms at the time of
the dissolution of the Soviet Union (Russia, Ukraine, Belarus and Kazakhstan) and a measure of
the average distance between the capitals of the recipient and its donors. These measures largely
reflect donor interests. The strategic importance of containing nuclear arms is straightforward,
but the particular focus on neighbouring countries also reflects the strategic interest at the time in
guaranteeing a bulwark against an unstable and unpredictable superpower in Russia.
Geographic distance turns out highly significant and negative suggesting that donors favoured
countries in proximity to Western Europe. Note also that the negative effect of income now be-
12
13. Aid Effectiveness in Times of Political Change
Table 1: Aid allocation in 1990-95
(1) (2) (3) (4)
All recipients CEEC-CIS CEEC-CIS 3-yrs av.
pcGDP -.11 -.15 -.61* -.98***
(.12) (.33) (.32) (.31)
pcGDP*CCC -.046
(.35)
Population .43*** .86*** .79*** .78***
(.10) (.13) (.13) (.081)
Population*CCC .43***
(.16)
Trade .0012 .026*** .034*** .022***
(.0045) (.0096) (.012) (.0065)
Trade*CCC .025**
(.010)
Polity -.015 .067** -.064 -.058
(.020) (.027) (.039) (.042)
Polity*CCC .082**
(.033)
Disasters .012 -.027 -.054** .055**
(.021) (.018) (.028) (.023)
Disasters*CCC -.040
(.027)
Colony .33
(.23)
CISCEEC -7.46*
(4.27)
Distance -.0013*** -.0020***
(.00030) (.00028)
Nuclear .28 .12
(.22) (.18)
Chi2 p-value 2.6e-270 7.9e-69 0 2.2e-256
Countries 117 24 24 21
N 627 98 98 42
Note: Dependent variable is aid flows. GDP and population are logged. Yearly observa-
tions for the period 1990-1995, 3-year averages in column (4). Standard errors clustered
at the country level in parentheses. * p < 0.10, ** p < 0.05, *** p < 0.01.
13
14. Aid Effectiveness in Times of Political Change
comes much larger and the coefficient on Polity switches sign to become negative, suggesting that
the previous results were driven by the fact that geographically close countries also tended to be eco-
nomically wealthier and more politically open. The nuclear dummy turns out positive as expected,
but insignificant.
Another possible reason for the differences across the sets of countries in column (1) may be
that different donors carry different weights in the two groups of recipients. To reduce this bias
we eliminate in sequence the donors (Germany, Japan, Austria) whose aid have a strongly dispro-
portionate relative size in one or the other recipient group. Both Germany and Japan have been
found to be motivated by commercial interests in other papers, e.g. Stone (2010). Results are very
similar. We also dropped Russia from the sample in order to see how sensitive our results are to
the exclusion of the by far largest market. Very little changes, though, and the coefficient on trade
actually increases somewhat in size. 13
Finally, in column (4) we show the results using averages for the three-year periods 1990-92 and
1993-95. Since yearly disbursements fluctuate substantially, our results might be driven by a few
extreme observations. By looking at this short panel with three-year averages, we take one step
towards reducing potential bias from high yearly volatility. The trade-off is that we are now down
to only 42 observations. The results largely confirm the previous findings, except for the effect
of disasters that now turns positive and significant. This suggests that CPA may still be affected
by disasters but this effect kicks in only with a lag, i.e. after the actual disaster, and as part of
reconstruction.
Overall the picture that emerges from the analysis above is that development aid in the early
stages may have been partly driven by ambitions to alleviate poverty: countries with lower per
capita income did get more aid, in particular when we control for geographical proximity and
nuclear warheads. However, commercial and strategic interests did clearly loom large.
A one standard deviation increase in trade volume, taking the conservative estimate from column
(3), yields an increase in aid corresponding to 12% of a standard deviation of the log of aid in the
sample. Doing the same for distance to capital yields a reduction by 64% of the standard deviation,
while the effect of the nuclear dummy corresponds to a 15% increase. The corresponding number
14
15. Aid Effectiveness in Times of Political Change
for the log of income is a 23% reduction. In other words, the trade volume matters about half as
much as income , and only slightly less than having nuclear armaments. However, distance has by
far the strongest influence on aid allocations to this group of countries in this period.
4 Trends over time in aid to CIS and CEEC
In Table 2 below we focus exclusively on CIS and CEEC recipients, and examine trends over time
between 1990 and 2007. 14
In column (1) we show the results from a na¨ıve regression in which we
constrain the marginal effects to be identical across different time periods. Not surprisingly, the
estimates are quite different from Table 1.
In columns (2) to (4) we test our argument that the motivation for aid is different in the early
going by introducing two dummies for the time periods 1990 to 1995 and 1996 to 2001 respectively.
These dummies are introduced separately and interacted with all independent variables. Columns
(2) and (3) pool the yearly data, the only difference being that we exclude Russia in column (3). In
column (4) we use three-year averages of the data to diminish the effect of random yearly variation.
The results show that the effects of trade, geographic location, democracy, income and disasters
have changed substantially over time. Details vary across specifications, but generally the effect of
trade was positive in the first part of the 1990s, much more limited in the latter part of the 1990s
and either zero or negative between 2002 and 2007. Geographic distance shows a similar pattern,
with countries close to the donors (i.e. close to Western Europe) getting more aid in the early 1990s,
and less aid after that, although not significantly less. More democratic countries receive less aid
in the early period and more aid in the subsequent periods. This suggests that aid over time has
been used more to reward countries opening up politically, but it may also be that aid has helped
countries open up politically (Heckelman 2010). Income has a negative correlation with aid in the
early period, turning insignificant after that. Finally, disasters are positively correlated with aid
since 2002, but negatively before that. The time dummy for 1995 itself is positive suggesting that
initially the countries got more aid than expected given the specification of the model. Overall the
results suggest that the motivation for development aid to the CEEC and CIS countries changed
15
16. Aid Effectiveness in Times of Political Change
Table 2: Table 2: Aid to CIS and CEEC over time
(1) (2) (3) (4)
Pooled Pooled No Russia 3-yrs av.
pcGDP 90-95 -.62* -1.05*** -1.26***
(.33) (.29) (.35)
pcGDP 96-01 .091 -.065 -.27
(.15) (.20) (.27)
pcGDP .079 -.044 .23 .29
(.18) (.19) (.23) (.29)
Population 90-95 1.02*** 1.15*** .23
(.30) (.27) (.23)
Population 96-01 .089 .073 .026
(.14) (.16) (.18)
Population .73*** .40*** .68*** .54**
(.15) (.15) (.16) (.22)
Trade 90-95 .040*** .057** .044***
(.013) (.022) (.014)
Trade 96-01 .0094 .020* .026*
(.0062) (.012) (.013)
Trade -.0032 -.0051 -.033*** -.022
(.0052) (.0056) (.010) (.013)
Polity 90-95 -.13*** -.15*** -.13***
(.047) (.045) (.046)
Polity 96-01 -.017 -.027 -.012
(.024) (.023) (.024)
Polity .037 .069** .089*** .072***
(.026) (.029) (.025) (.026)
Disasters 90-95 -.15*** -.040 -.15**
(.035) (.11) (.075)
Disasters 96-01 -.10*** -.072 -.19***
(.032) (.045) (.074)
Disasters .025 .11*** .012 .21***
(.020) (.034) (.052) (.074)
Distance 90-95 -.0016*** -.0019*** -.0023***
(.00037) (.00039) (.00032)
Distance 96-01 -.000096 -.00016 -.000089
(.00017) (.00019) (.00018)
Distance -.0000049 .00027 .00034 .00030
(.00021) (.00020) (.00022) (.00018)
Nuclear 90-95 -.13 .092 .17
(.39) (.44) (.46)
Nuclear 96-01 .055 .26 .43
(.25) (.32) (.38)
Nuclear .055 .32 -.18 -.047
(.24) (.29) (.32) (.45)
90-95 5.83 14.8*** 16.1***
(5.15) (4.58) (5.93)
96-01 -3.48 .75 1.76
(2.79) (3.80) (4.67)
Chi2 p-value 9.2e-165 0 2.6e-117 0
Countries 25 25 24 25
N 332 324 311 126
Note: Dependent variable is aid flows. GDP and population are logged. Standard
errors clustered at the country level in parentheses. * p < 0.10, ** p < 0.05, ***
p < 0.01.
16
17. Aid Effectiveness in Times of Political Change
over time, and in particular that strategic and commercial interests were of greater relevance early
on in the partnership.
At this point it might be argued that the end of the Cold War not only meant the emergence of
a new set of recipients, but also a more general shift in aid motivation and allocation. It is therefore
possible that the pattern that we see above for CEEC and CIS countries also holds true for other
recipients, which would invalidate our argument that motivations depend on the maturity of the
relationship. To rule out this possibility we rerun the regressions from columns (1) and (2) on all
other recipients: no such pattern can be identified in the other group of aid recipients.15
5 Entry decision
As an additional test of our argument, we apply an alternative approach to gage the relative
importance of donor interests and recipient needs in the early stages: which countries are donors in
the most hurry to enter? If aid is primarily motivated by recipient needs then donor countries should
be in the most hurry to enter the poorest countries (maybe conditional on political institutions and
economic policies). On the other hand, if donors were predominantly motivated by commercial
interests, then they should be in the most hurry to enter relatively better off countries (bigger
markets), and in particular those with which they trade. We construct a measure of the number
of years since 1989 it took before a donor entered into an aid relationship with a recipient country,
and use a Poisson model with robust standard errors (results are shown in the online appendix).
The results largely confirm those for aid allocation. Donors have entered earlier into countries with
greater commercial potential as captured by higher income and trade flows. On the other hand,
donors also entered quicker into countries with more democratic institutions. Together with the
negative sign on Polity in Table 2, this suggests that donors entered earlier into more democratic
countries, although not primarily offering more aid but by quickly offering political support for the
democratic transition.
17
18. Aid Effectiveness in Times of Political Change
6 Sensitivity analysis
To check further for the robustness of our results, we perform some additional tests.16
We are in
particular focusing on the robustness of the commercial interests, as reflected by the correlation
between trade and aid.
The positive correlation between trade and aid is typically interpreted in the literature as an
indication that aid is used to push donor country’s exports or secure imports of vital interest (energy
or rare earth metals for instance). We argue that this commercial motive may be particularly
important in the early stage of the partnership, not only to promote current trade, but also to gain
a competitive advantage that can help promote trade in the future. If this is correct, then we should
expect also future trade flows to be correlated with aid in the first years of the partnership. To the
extent that trade in those early years only reflects part of the potential for trade in the future, the
estimated effect of future trade may be even stronger. Introducing both current trade and trade
five years later in the model of column (3) from Table 1 makes current trade insignificant, while
trade five years later retains statistical significance. The little variation there is between the two
measures (the correlation between current trade and future trade is very high) indicates thus that
trade potential may be more important than current trade.
Another indication of the role of trade in the early period comes from looking at bilateral rather
than aggregated data. If the trade potential with different recipients differs across donors, then one
would expect the aggregated data to show a smaller effect than the dyadic data. When we use dyadic
data from 1990 to 1995 and replicate column (3) from Table 1, the size of the coefficient on trade
becomes eight to ten times as large as in Table 1. This suggests that donors are primarily concerned
with their own trading partners, not just countries that trade much in general. In principle, donors
can support a viable business and investment environment for development purposes, and this may
be more effective in a setting in which the geographical potential for trade and FDI is higher to start
with. However, then they would have no reason to focus particularly on their own trading partners,
as these results suggest. Aid for the purpose of making sure that trade ties are established with
donor A instead of donor B do not serve the purpose of developing the recipient country’s private
18
19. Aid Effectiveness in Times of Political Change
sector. In the worst case, aid money could tilt the deal in favor of inferior commercial contracts if
recipient country governments impose undue pressure on private companies.
We have been arguing that trade potential motivates aid flows because aid can function as a
sweetener for trade deals. However, the causal link between aid and trade may well be bidirectional:
more generous aid disbursements can generate foreign connections, provide technological and man-
agement know-how, and help support a business environment more conducive to export-oriented
industries in general. Furthermore, bilateral aid and trade flows may also be jointly caused by
some third unobservable variable perhaps related to historical connections between economic and
political elites or cultural affinity. To deal with potential endogeneity bias we follow Frankel and
Romer (1999) and specify a gravity model for bilateral trade using both countries’ land area, donor
country population, a dummy for shared borders, and the latter’s interaction with the others as
external instruments. In Table 3 we report the results from the 2SLS regressions(the first stage is
reported in the appendix). As can be seen by comparing Column 1 (OLS) with Column 2 (2SLS),
the coefficient for trade becomes larger with instrumentation.
Trade may not be the only channel through which shared borders affect aid flows: a shared bor-
der makes it more likely that two countries have been part of the same country historically, and mi-
gration flows are larger for neighboring countries. We hence include Migrants 90 and Same country
as a test of the exclusion restrictions on some of the instruments. None of these variables are signif-
icant in the instrumented model and their inclusion actually inflates the estimated effect of trade.
The table also reports two statistics that inform about instrument strength. The first is the p-value
of the Angrist and Pischke (2009) test of excluded instruments. The second is the Kleibergen and
Paap (2006) Wald statistic. Both are tests of instrument weakness. The null hypothesis of the
Angrist and Pischke test is rejected at 5% level, and the Kleibergen and Paap Wald statistic is very
high. It is lower though in column (3), suggesting that the instrumentation is somewhat weakened
by the inclusion of Migrants 90 and Same country.
19
20. Aid Effectiveness in Times of Political Change
Table 3: Table 3: Sensitivity analysis - IV for trade
(1) (2) (3)
OLS OLS IV OLS IV
pcGDP .21 .19 .081
(.23) (.25) (.27)
Population .56*** .53** .54**
(.18) (.23) (.23)
Trade .46*** .65** 1.15**
(.086) (.28) (.54)
Polity .026 .026 .030
(.025) (.025) (.028)
Disasters -.039 -.049 -.13
(.040) (.040) (.095)
Distance -.00011*** -.00011*** -.000094***
(.000020) (.000024) (.000024)
Nuclear -.65* -.64* -.69*
(.34) (.38) (.39)
Same Country .0076
(1.13)
Migrants 90 -.0029
(.0027)
R2 .20 .21 .12
AP test (p-val) 0 0
KP F stat 35850.8 5152.1
Countries 24 23 23
N 1087 1008 1008
Note: Dependent variable is aid flows at the partnership level. AP: Angrist-Pischke.
KP: Kleibergen-Paap. Standard errors clustered at the recipient level in parentheses.
* p < 0.10, ** p < 0.05, *** p < 0.01.
20
21. Aid Effectiveness in Times of Political Change
7 Aid Practices
The evidence so far suggests that a realist perspective emphasizing commercial and strategic donor
interests best fits aid motivation when new countries emerged as potential aid partners after the
end of the Cold War. As argued above, this has implications for the ability of aid to promote
development as it may skew the allocation of limited budgets away from where aid is most likely
to have a favorable impact. This may not be the only way, though, through which aid effectiveness
suffers. Aid practices such as those that donors committed to in the Paris Declaration (and in the
following High Level meetings in Accra and Busan) may also suffer. The measures now used to
evaluate progress with the Paris Declaration (e.g. Knack et al., 2010 and OECD, forth. b) are
generally not available for the 1990s, so we are quite restricted in our evaluation. But below follows
some indicative evidence, comparing aid practices in the CEEC and CIS countries in the 1990s to
practices in other recipients during the same time period.
As part of the commitment to harmonization, donors have pledged to increase aid co-ordination
and reduce aid fragmentation. This involves common arrangements for planning, funding, moni-
toring and reporting on aid activities, but also a focus on countries and sectors in which donors
have a comparative advantage based on capacity or historical relationships. We do not have access
to detailed data on the donor coordination of arrangements in the CEEC and CIS in the 1990s so
we focus on aid fragmentation and, in accordance with the literature, on measures of the number
of donors involved in a recipient country or, reversely, the number of recipient countries a donor
is engaged in, as well as an indicator of the presence of (financially) small donors in the recipient
countries (Knack and Rahman 2007, Frot and Santiso 2011). We show below a graph of how the
number of recipient countries for the average DAC member has changed over time. As can be seen,
fragmentation increased slowly from 1976 to 1985, stayed constant until 1990, and then steadily
increased up until 1995. The end of the Cold War is thus associated with a substantial increase in
donors aid portfolios as new recipients emerged in the CEEC and CIS while very few established
relationships were terminated.
Fragmentation can also be measured from the point of view of the recipient countries. Figure
21
22. Aid Effectiveness in Times of Political Change
020406080
Recipientsperdonor
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Figure 1: Average number of recipients per DAC donor over time
2 shows how the number of donors that each of the new countries established partnerships with
increased rapidly to catch up to the standards of previous aid recipients within only a few years.
By 1999 all of the major donors had entered the 27 new countries. The number of donors in each
sector also follows a similar pattern (see the apendix).
Another indicator of fragmentation is what the OECD (OECD, 2009) refers to as non-significant
relationships. The characterization of a partnership as non-significant is based on two criteria: i)
how concentrated the donor is in this recipient, i.e. how big a share of its aid goes to this recipient
in relation to the donor’s contribution to total global aid; and ii) how important the donor is for
the recipient, in particular whether it belongs to the set of largest donors jointly contributing 90%
of the country’s aid receipt. Partnerships that fail both of these criteria are labeled non-significant.
Figure 3 shows that this was far more common in this region than in the rest of the world between
1990 and 1995. This is likely due to strong incentives for donors to quickly be part of the action
when new regimes came to power, perhaps before considering the possibility and opportunity of a
22
23. Aid Effectiveness in Times of Political Change
more substantial long-run commitment.17
Another priority in the Paris Declaration is to make aid less volatile and more predictable.
Among other things, high volatility complicates public financing, shifts resources from investment
to consumption and exacerbates business cycles (Desai et al., 2010), and has therefore been a major
concern for many years (see Bul´ıˇr and Hamann, 2008). To calculate volatility we ran an AR(1)
process, collected the error terms and then calculated the mean squared errors for each country.
This approach de-trends the data, contrary to some alternative measures that may suggest high
volatility in countries seeing a steady increase or decrease in aid inflows (which does not really imply
volatility, and in particular not unpredictability). This is especially important in this case, since
new recipients may be more likely to see an increasing trend than more established recipients. Aid
indeed seems to be more volatile in CEEC and CIS countries compared with other recipients over
the period 1990-1995. Furthermore, volatility within CEEC and CIS is higher in this first period
compared with the following 5 years.18
2.pdf
05101520
Donorsperrecipient
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1
Figure 2: Average number of donors per recipient in CEEC-CIS countries and other recipients
23
24. Aid Effectiveness in Times of Political Change
3.pdf
10
15
20
25
30
35
40
45
ComputedbyWolframAlpha
Figure3:Non-significantaidpartnerships,1990-1995
24
25. Aid Effectiveness in Times of Political Change
Table 4: Table 4: Measures of aid quality, differences in means
(1) (2) (3) (4)
Fraction disbursed Fraction tied Mean project Program-based
CEEC-CIS -.18*** .052*** -.47 .054
(.020) (.0088) (.38) (.033)
Constant .49*** .62*** 3.31*** .19***
(.013) (.0057) (.21) (.0077)
Donors 26 26 26 17
Recipients 176 176 177 165
Observations 15751 16076 17132 4597
Note: Yearly observations for the period 1990-1999. All regressions include donor fixed effects. Standard
errors clustered at the recipient level in parentheses. * p < 0.10, ** p < 0.05, *** p < 0.01.
In Table 4 we look at some other measures of aid effectiveness related to the objectives of the
Paris Declaration. By running simple correlations with a CEEC-CIS dummy we capture average
differences between this group and other recipients. Column (1) offers another indication of the
urgency to establish some kind of relationship before a fully-fledged engagement could be considered:
the fraction of aid disbursed relative to that committed is significantly lower in the CEEC-CIS
countries. Such a lack of long-term planning may be a factor contributing to the unpredictability
of aid. In column (2) we look at the proportion of aid that is tied, something we may expect to
go up as commercial interests become more important for aid decisions. The fraction of aid that
was tied was also significantly higher in CEEC-CIS compared to other recipients at the time. The
average size of projects, around 3.3 million USD as shown in column (3), is slightly smaller in
CEEC-CIS, but not-significantly so (smaller projects imply more fragmented aid). Finally column
(4) compares the share disbursed through program-based approaches. Program aid refers to the
disbursement of funds broadly earmarked to a sector and managed by the recipient country, as
opposed to the direct implementation of specific projects managed by the donor. Program aid and
budget support contribute more directly to the recipient government’s budget, and are therefore
in line with the focus on ownership. It is also argued that this approach can contribute to reduce
aid fragmentation. According to the available data - a rather small sub-sample of donors - around
20% of aid during this period was disbursed with these modalities, and the share is not significantly
25
26. Aid Effectiveness in Times of Political Change
different in CEEC and CIS recipients.19
It is important to stress that these regressions all include
donor fixed effects, and hence the results speak to within-donor differences in practices. In other
words, the same donors did behave differently in the region compared to towards their previous
recipients in these respects.
26
27. Aid Effectiveness in Times of Political Change
8 Conclusions
In this paper we make the argument that foreign aid motivation may vary depending on the maturity
of the relationship between the donor and the recipient. More specifically, an international realist
perspective emphasizing donor interests may hold more sway early on, as strategic influence and
commercial contracts are typically won in competition with others, and as there is often a first
mover advantage in establishing such relationships with a new regime or government. On the other
hand, a liberal idealist perspective emphasizing recipient needs suffers from the usual problems of
under-provision and free-riding as promoting development in poor countries is a public good. Over
time, though, as strategic and commercial ties become more solid and depend less on the additional
help through foreign aid, development concerns can come more in the relative forefront for foreign
aid policy.
We test our argument using the case of Eastern transition. The sudden collapse of communism
created almost a natural experiment with a new set of countries, differing widely in levels of poverty,
strategic importance and commercial potential, emerging as potential beneficiaries of western aid.
We find that aid flows were highly influenced by trade flows and geographic proximity to Western
donors in the first part of the 1990s, but that these results substantially weaken over time. We
also find that skewed priorities and time pressure influenced aid practices negatively. The rush to
establish new partnerships lead to a surge in aid fractionalisation, both from the donor’s and the
recipient’s perspective, and high levels of aid volatility and unpredictability. A larger fraction of
aid was also tied to procurement from the donor country, as compared to other recipient countries
at the time.
The case of foreign aid during the Eastern transition is important in itself, but we also think it
provides some crucial lessons for donor countries looking ahead. The current events in the MENA
region are sometimes pitched as the potential for a new economic and political transition (Meyersson
et al., 2011). A new political leadership has emerged in countries such as Tunisia, Libya, Egypt
and Yemen, and more may come. With the new political leadership also comes a gradual change in
economic ownership and control, and the region is opening up for more foreign investments and trade
27
28. Aid Effectiveness in Times of Political Change
as the social contract in the region becomes less dependent on the state, and more on the private
sector. Strategic concerns related to terrorism, migration and access to oil and gas also guarantee
that governments in western countries will have a stake in the transformation taking place. Based
on the experience of Eastern transition, it is likely that strategic and commercial interests will
dominate the allocation of aid early on, which may have negative consequences on the ability of aid
to promote development and alleviate poverty. As the examples of Iraq and Afghanistan suggest,
in particular military strategic motives can substantially dictate aid flows if deemed significant
enough. If our results have anything to say, the practices for aid effectiveness agreed upon in the
Paris Declaration are also likely to suffer, causing aid to the region to be fractionalised, volatile and
unpredictable. Respect for ownership and alignment to recipient country objectives may also come
under question, in particular if new governments move in an ideological direction alien to western
donors. Hopefully in a few years time, a follow up study on the MENA region can be used to test
the generality of our current findings. In the meanwhile, however, being aware of these tendencies
might help donor countries to actively resist them, to the extent that they produce undesirable
outcomes.
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Notes
1Another current case that has attracted substantial attention from foreign governments and donors is the opening
up of Burma. Canada, EU and Denmark, among others, have announced increased aid and easening of sanctions
during the last year, Parks (2012).
2Based on this finding, Frot and Perrotta (2010) use time of entry as an instrument to re-evaluate the impact of
aid on economic growth. They find a more robust positive effect than is usually found using alternative instruments.
3These perspectives do of course not just cover foreign aid policy, but foreign policy generally (Waltz, 2000).
4Egypt turned down a 3 USD billion credit from the IMF in 2011 in anticipation of equally generous loans but
with less strings attached from Saudi Arabia and the Emirates.
5The agenda has also been expanded on in the subsequent high-level meetings in Accra and Busan.
6A full list of countries in respective groups is provided in the online appendix.
7In this paper we do not analyze differences in behavior across different donors but instead focus on aggregate
aid flows. Exploring such differences would be an interesting avenue for future research. It should be emphasized,
though, that aid policy of individual donors depends to a large extent on what other donors do. Frot and Santiso
(2011) find support for herding behavior among donors even when carefully controlling for external sources of aid
correlation, such as natural disasters, debt relief programs etc. On the other hand, recent policies to mitigate aid
fractionalisation, such as the EC 2007 Code of Conduct, should cause aid flows across donors to be negatively
correlated. Analyzing individual donors’ behavior must thus still take the actions of other donors into consideration,
suggesting that aid cannot so easily be analyzed donor by donor.
32
33. NOTES Aid Effectiveness in Times of Political Change
8Data from EM-DAT: The OFDA/CRED International Disaster Database, www.emdat.be, Universit´e Catholique
de Louvain, Brussels, Belgium.
9Just looking at exports over GDP, as is done in some papers, leads to similar results. Ideally we would have
liked to include also investments from the donors, but such data is very spotty in the early period.
10A section including the formal comparison of the two estimators together with a replication of Table 1 using the
log of aid and the OLS estimator is available in the online appendix. The results are very similar. If anything, our
key results come out slightly stronger in the linear model.
11We cannot rule out that country-specific and time-invariant factors influence aid flows, so our specification reflects
the common trade off between precision and consistency. Given that there is substantially more variation between
than within countries, and that our theoretical arguments focus on variation across countries, we refrain from using
a recipient country fixed effects specification. However we cluster the standard errors at the recipient level whenever
applicable in order to take into account the correlation between observations of the same recipient over time.
12See the on-line appendix.
13Results are not shown here. The complete table is reported in the online appendix.
14Data on aid to the following CEEC/NIS countries in transition, first collected for 1990 flows, were recorded only
until and including 2004: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia,
Slovak Republic, Slovenia. Our results do not change excluding the years 2005-2007. Results are available upon
request.
15Results available in the online appendix.
16All the results summarized in this section are available in the online appendix
17Donors’ aid budgets, and aid volumes from a typical donor to a typical recipient, are fairly persistent. Hence it
might be difficult to meet the importance criterion on a short time horizon. However, the data reveal that total aid
received by these new recipients in the initial time period are not dramatically lower compared to the disbursements
towards other recipients at the same time - the mean levels are respectively 131.04 versus 176.23 USD millions. This
implies more numerous smaller donors, for a similar level of total aid receipt, which is precisely were all the problems
with fragmentation arise.
18Results available in the online appendix.
1920% is actually quite a big share, even compared with current levels of program aid. However, since these data
33
34. NOTES Aid Effectiveness in Times of Political Change
are based on (voluntary) reports from donor administrations, the smaller the sample, the stronger the concern about
selection. It might well be that only the ”best” donors take the trouble to report, and they are the ones that also
have better quality of aid in other respects.
34