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The Review of International Organizations

Erschienen in:

01.09.2012

Selectivity on aid modality: Determinants of budget support from multilateral donors

verfasst von: Paul Clist, Alessia Isopi, Oliver Morrissey

Erschienen in: The Review of International Organizations | Ausgabe 3/2012

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Abstract

Since the late 1990s a selection on policy approach to aid was advocated such that more aid should be allocated to countries with good policies, but there is little evidence that this has occurred. This paper argues that donors may exercise selectivity over the aid modality. Specifically, multilateral donors will cede more recipient control over aid by granting more budget support to those recipients with better expenditure systems and spending preferences (towards the poor) aligned with the donor. We test this for European Commission and World Bank budget support over 1997–2009 and find some support. Both donors have given budget support to almost half of the countries they give aid, and it is usually a significant share of their aid. The principal determinants of receiving budget support are having a poverty reduction strategy in place, which can be considered a good indicator of aligned preferences, and indicators of government efficiency. These variables did not, however, influence the amount of budget support given. Multilateral donors have been more likely to give budget support to countries with aligned spending preferences and better quality systems, even if they have not reallocated the total aid envelope in that way.

Vorheriger Artikel The most-favored nation rule in principle and practice: Discrimination in the GATT

Nächster Artikel Global governance behind closed doors: The IMF boardroom, the Enhanced Structural Adjustment Facility, and the intersection of material power and norm stabilisation in global politics

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The Appendix is available on this journal’s webpage.

Budget support only increases spending on development goods under conditionality so it imposes a cost on recipients as ‘an inefficiency may emerge if donors are forced to impose higher levels of expenditure on the more controllable components of the budget’ (Cordella and Dell'Ariccia 2007: 1261).

The game theoretic approach is less suitable to describe the situation we have in mind because although, as in this framework, the utility of one player depends on the decision of the other player involved, in the game no delegation of tasks is involved and no transfer against outcome usually occurs.

Although Hagen (2006a) critizises this approach given the limited enforcement of aid contracts, Fafchamps and Mintens (1999) argue that in developing countries, even in the absence of legal institutions, enforcement of contracts is based on trust generated by repeated interactions. Donors may accept the contract as enforceable (even if not fully).

The assumption that A is pre-determined allows us to focus on the choice of the composition of aid (note that it does not make the modelling easier). A static model is obviously an over simplification with respect to reality, where usually there are repeated interactions between donors and recipients. However, ‘the one shot relationship is rather typical of aid projects, since the employees of donor agencies find themselves frequently moving from country to country and function to function’ (Murrell 2002, p. 79, fn 14). In a similar vein, donor officials deciding on the composition of aid may view it as one shot (it is the donor agency rather than an official that has repeated interaction).

As with CDA, the model we present has a multilateral donor in mind on the basis that they are more likely to be able to exercise selectivity and where we can more confidently assume that the donor is entirely altruistic. Svensson (2000) argues that international organizations have less inequality aversion and are therefore less susceptible to the Samaritan’s Dilemma. Although Hagen (2006b) argues that this would not resolve the dilemma if aid efficiency varies across recipients and it is not evident that multilaterals have less inequality aversion or are better able to enforce conditionality, it supports the tendency for multilaterals to be more selective.

The complete information case does not require the incentive compatibility constraints but gives essentially similar results (the proof is available on request).

This is independent of the model assumption that donor costs are the same for PA and GBS (δ does not appear in the equilibrium conditions). Although in principle more donors could imply more to coordinate with in providing GBS, in practice only a few donors provide GBS together.

Booth et al. (2006) argue that while PRSPs have motivated budget support alignment of donors, the donor evaluation processes for PRSP implementation and budget support performance are not themselves aligned very well.

This is corroborated by alternative estimates where IPRSP is set at 1 for all years after it is agreed (i.e., not turned off if a PRSP is agreed): education spending and number of donors (positive) and effectiveness (negative) are significant and 70% of cases are correctly predicted (see online Appendix B3, Table B6).

Contrary to the results in Table 1, the coefficients on education spending (for both) and number of donors (for EC) are now negative and significant, and government effectiveness is now positive and significant. Countries with higher education spending are more likely to have a PRSP; given this, those without a PRSP that receive GBS have relatively low education spending. This suggests that if donors do not see education spending being addressed under a PRSP they may use GBS conditionality to achieve this. Another implication is that low government effectiveness is no bar to having an PRSP, so the interpretation for GBS would then be either that a recipient is in the PRSP process (that may improve efficiency) or have relatively high efficiency.

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Cordella, T., & Dell'Ariccia, G. (2007). Budget support versus project aid: a theoretical appraisal. Economic Journal, 117(523), 1260–1279.CrossRef

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Titel: Selectivity on aid modality: Determinants of budget support from multilateral donors
verfasst von: Paul Clist
Alessia Isopi
Oliver Morrissey
Publikationsdatum: 01.09.2012
Verlag: Springer US
Erschienen in: The Review of International Organizations / Ausgabe 3/2012
Print ISSN: 1559-7431
Elektronische ISSN: 1559-744X
DOI: https://doi.org/10.1007/s11558-011-9137-2

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