Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25073 
Authors: 
Year of Publication: 
2005
Series/Report no.: 
SFB 649 Discussion Paper No. 2005,054
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
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

Files in This Item:
File
Size
635.08 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.