Seminar Papers, Institute for International Economic Studies, Stockholm University
No 600:
When is Foreign Aid Policy Credible? - Aid Dependence and Conditionality
Jakob Svensson ()
Abstract: In spite a vast amount of both theoretical and empirical
work on foreign assistance and development, little is known about the
incentive effects of aid. In fact, recent surveys of aid only briefly
mention the possibility of moral hazard situations in the recipient-donor
relation, but conclude that conditionality is a way to deal with the
problem. However, in this paper we show that an aid contract, as proposed
in the literature, is not time-consistent. This may be one explanation for
the poor results of the vast amount of foreign aid disbursed to the
developing world. Moreover, we show that tied aid, or delegation to a donor
agency with less aversion to poverty may improve the equilibrium for all
parties in the discretionary environment. Finally, we provide some evidence
supporting the basic idea of the paper, namely that aid induces weak fiscal
discipline and that increased fiscal difficulties lead to higher inflow of
aid.
Keywords: foreign aid; moral hazard; tied aid; fiscal discipline; fiscal difficulties; inflow of aid; (follow links to similar papers)
JEL-Codes: F35; (follow links to similar papers)
37 pages, November 5, 1997
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
FULLTEXT01 
Download Statistics
- This paper is published as:
-
Svensson, Jakob, (2000), 'When is Foreign Aid Policy Credible? - Aid Dependence and Conditionality', Journal of Development Economics, Vol. 61, No. 1, pages 61-84
Questions (including download problems) about the papers in this series should be directed to Erik Prawitz (), Mounir Karadja () or Niels-Jakob Harbo Hansen ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
