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Sonderforschungsbereich 649: Ökonomisches Risiko, Humboldt-Universität Berlin >
SFB 649 Discussion Papers, HU Berlin >
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http://hdl.handle.net/10419/25073
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| Title: | | Aid effectiveness and limited enforceable conditionality  |
| Authors: | | Scholl, Almuth |
| Issue Date: | | 2005 |
| Series/Report no.: | | SFB 649 discussion paper 2005,054 |
| Abstract: | | This paper analyzes optimal foreign aid policy in a neoclassical framework with a conflict of interest between the donor and the recipient government. Aid conditionality is modelled as a limited enforceable contract. We define conditional aid policy to be self-enforcing if, at any point in time, the conditions imposed on aid funds are supportable by the threat of a permanent aid cutoff from then onward. Quantitative results show that the effectiveness of unconditional aid is low while self-enforcing conditional aid strongly stimulates the economy. However, increasing the welfare of the poor comes at high cost: to ensure aid effectiveness, less democratic political regimes receive permanently larger aid funds. |
| JEL: | | E13 F35 O11 O19 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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