The Political Economy Of Conditional And Unconditional Foreign Assistance

Improving the effectiveness of financial assistance programs is a priority of international financial institutions (IFIs). This paper examines the effectiveness of alternative assistance instruments in a dynamic political economy framework. Economic policies of the receiving country are distorted by the influence of a domestic interest group. The assistance-providing IFI aims at reducing these distortions. The IFI provides assistance either as grants or loans, and either conditionally on reducing policy distortions or unconditionally. The paper shows that, other things constant, one-time grants are more effective than loan rollovers when assistance is unconditional, but that the opposite is true when assistance is conditional.

Improving the effectiveness of financial assistance programs is a priority of international financial institutions (IFIs). This paper examines the effectiveness of alternative assistance instruments in a dynamic political economy framework. Economic policies of the receiving country are distorted by the influence of a domestic interest group. The assistance-providing IFI aims at reducing these distortions. The IFI provides assistance either as grants or loans, and either conditionally on reducing policy distortions or unconditionally. The paper shows that, other things constant, one-time grants are more effective than loan rollovers when assistance is unconditional, but that the opposite is true when assistance is conditional.

Foreign aid and overseas military intervention have been important and controversial political topics for over a decade. The government’s controversial target to spend 0.7 per cent of national income on foreign aid has been widely welcomed by some, but strongly criticised by others. Furthermore, the controversy of the Iraq war rumbles on, even today. This is all happening amongst much instability in many parts of the world. In this short book, a number of authors challenge the assumption that we can bring about economic development and promote liberal democracies through direct foreign intervention – whether economic or military intervention. The lead author, William Easterly, drawing on his wide experience at the World Bank and as an academic, is a renowned sceptic of intervention. He points out that solutions proposed now to the problem of poverty are identical to solutions proposed decades ago – but the plans of rich governments simply do not successfully transform poor countries. Academics Abigail Hall-Blanco and Christian Bjornskov add further context and put forward empirical evidence that backs up Easterly’s argument. Syvlie Aboa-Bradwell draws upon her own practical experience to give examples of how people in poor countries can be assisted to promote their own development. This book is essential reading for students, teachers and all interested in better understanding how to help – and how not to help – the world’s most disadvantaged peoples.

The paper models the relationship between an aid-providing international financial institution (IFI) and an aid-receiving government whose economic policy choices are influenced by a domestic interest group. Two assistance schemes are evaluated: conditional aid in which the IFI makes assistance contingent on less-distorting economic policies and unconditional aid which is provided without such conditions. Conditional aid is shown to raise welfare of the receiving country and the world as a whole relative to unconditional aid. The paper also examines how conditional and unconditional aid schemes are influenced by the IFI's opportunity cost of providing assistance and the receiving government's political dependence on a domestic interest group.

The essential purpose of foreign aid is to reduce poverty and to help millions of people in the developing world. Yet, already the Marshall Plan demonstrates that donor governments frequently use development assistance as a foreign policy tool in order to promote their interests at the international stage. This ambivalence points to the need for a clear understanding of aid allocation, also as starting point for a better comprehension how aid affects development. Furthermore, the study of foreign aid allocation is not only fundamental for our knowledge on aid effectiveness, but also allows insights into the foreign policy preferences of rich governments toward the developing world. In order to address this, the following thesis highlights the importance of foreign aid as a foreign policy tool and illus- trates in three substantial chapters how developed states use financial assistance to buy policy concessions from developing countries. In this context, the author first contrasts the official aid doctrine with the actual, more hidden agenda over the last six decades, and also emphasizes important av- enues for further research. Second and by building upon existing research, the dissertation shows how donor governments strategically distinguish between con- ditional and unconditional aid to support more democratic developing countries that face political turmoil. Third, the thesis focuses on the public and private good aspects of aid, and explores how foreign aid might be used for access to raw materials - a case with potentially clear negative externalities to other donors. It is argued that donor governments allocate more aid to possible trading partners in mineral ores to secure their companies access to these resources. Against this background, the theoretical and empirical analyses of donors' aid allocation behavior illustrate that donor governments use foreign aid as a policy tool to further their very own interests in developing countries. Yet, this may not necessarily be detrimental to recipient needs. With the increasing international integration and the rise of more, heterogeneous donor countries, recipients become ever more important. Consequently, also the political economy of foreign aid.

Explores the different choices made by donor governments when delivering foreign aid projects around the world.

A Brookings Institution Press and Center for Strategic and International Studies publication In a world transformed by globalization and challenged by terrorism, foreign aid has assumed renewed importance as a foreign policy tool. While the results of more than forty years of development assistance show some successes, foreign aid is currently dispersed between many agencies and branches of government in a manner that formulation and implementation of a coherent, effective strategy. The current political climate is receptive to a transition toward greater accountability and effectiveness in development aid. Because this transition is clearly an imperative but has not yet been comprehensively addressed, the Brookings Institution and the Center for Strategic and International Studies have conducted a joint study that both assesses the current structures of foreign assistance and makes recommendations for efficient coordination. Drawing on expertise from the full range of agencies whose policies affect foreign aid, Security by Other Means examines foreign assistance across four categories reflecting the interests that aid furthers: security, economic, humanitarian, and political. As disparities in the world become more untenable, foreign aid plays a key role in not only the national interests of the U.S. but also the interconnected interests of the international community. This important new volume takes aim at critical questions in a concerted manner by assigning coherence and effectiveness to U.S. foreign aid. Contributors include Owen Barder (Center for Global Development, formerly UK Department for International Development), Charlie Flickner (former Staff Director of the House Appropriations Subcommittee on Foreign Operations), Steve Hensch (George Washington University), Steve Morrison (Center for Strategic and International Studies), Steve Radelet (Center for Global Development)

The phenomenon of foreign aid began at the end of World War II and has survived the Cold War. How should the United States now spend its foreign aid to support its interests and values in the new century? In this study, Carol Lancaster takes a fresh look at all US foreign aid programs and asks whether their purposes, organization and management are appropriate to US interests and values in the world of the 21st century. Lancaster finds that US aid in the new century, if it is to be an effective tool of US foreign policy, needs to be transformed. Its purposes need to be refocused and its organization and management brought into line with those purposes. Those purposes include support for peace-making, addressing transnational issues, providing for humane concerns and responding to humanitarian emergencies. Traditional programs aimed at promoting development, democracy and economic and political transitions in former socialist countries will not disappear but they will have less priority than inthe past. These new sets of purposes, promoting both US interests and values abroad, also offer a policy paradigm around which a new political consensus can be created that will support US aid in the 21st century.Transforming Foreign Aid should be of particular interest to professors, students, and researchers of international affairs, foreign policy, political science, and political economy.