Buying Influence: Aid Fungibility in a Strategic Perspective

Hagen, Rune Jansen

doi:10.1111/j.1467-9361.2006.00317.x

Cited by 10 publications

(7 citation statements)

References 19 publications

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“…26 Sajal Lahiri and Pascalis Raimondos-Møller also suggested that a donor can affect fungibility by choosing both the amount of aid and its timing. Other things being equal, additional do-nor funding is associated with reduced government spending on health.…”

Section: Discussionmentioning

confidence: 99%

Does Funding From Donors Displace Government Spending For Health In Developing Countries?

Farag¹,

Nandakumar²,

Wallack³

et al. 2009

Health Affairs

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The notable increases in funding from various donors for health over the past several years have made examining the effectiveness of aid all the more important. We examine the extent to which donor funding for health substitutes for--rather than complements--health financing by recipient governments. We find evidence of a strong substitution effect. The proportionate decrease in government spending associated with an increase in donor funding is largest in low-income countries. The results suggest that aid needs to be structured in a way that better aligns donors' and recipient governments' incentives, using innovative approaches such as performance-based aid financing.

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Section: Discussionmentioning

confidence: 99%

Does Funding From Donors Displace Government Spending For Health In Developing Countries?

Farag¹,

Nandakumar²,

Wallack³

et al. 2009

Health Affairs

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“…This also contrasts with the strategic approach to aid fungibility, where, other things being equal, donor influence over outcomes is a function of the size of the aid budget (seeHagen, 2006b). However, such models indicate other ways in which aid could induce recipient governments with conflicting preferences to choose identical policies (also seeHagen, 2009a).19 It is true that aid disbursements are highly volatile (seePallage and Robe, 2001;Bulir and Hamann, 2003).…”

mentioning

confidence: 99%

Dancing to the Donors' Tune? Policy Choice in Aid‐Dependent Countries

Hagen

2014

Scandinavian J Economics

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Current aid rhetoric emphasizes the selective allocation of otherwise unconditional funds in support of the recipients' own plans, in contrast to the old donor practice of bundling money and policies. I show that when recipients have private information, policies reflecting their preferences and knowledge might result in such a regime. However, generous transfers can also induce them to conform to the outcome-oriented expectations of donors at the expense of lower aid impact. Such behaviour is consistent with an abundance of case-study evidence. Moderate disagreements over what the optimal policy is could actually produce better results. Certain forms of both donor competition and coordination might also eliminate this distortion, while a donor concern for need only removes incentives for aid-seeking in the least needy countries. In summary, optimal aid policies are highly context-specific, and donors should thus concentrate their efforts to practise more informed selectivity.

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“…Further complicating the picture is the fact aid may lead to a reduction in taxation, raising the opportunity cost of rent seeking. The result is a highly non-linear relationship, which cannot in general be 29 See the theoretical analysis and discussion in Hagen (2006a). Feyzioglu et al (1998) find that the degree of fungibility varies across sectors.…”

Section: Corruption Rent Seeking and Policy Rentsmentioning

confidence: 99%

Rents and the political economy of development aid

Hagen¹

2015

Companion to the Political Economy of Rent Seeking

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Empirical studies suggest little impact of foreign aid on growth on average. As aid can be viewed as a sovereign rent akin to natural resource rents, it is likely that rent seeking plays a role in explaining this disappointing outcome. The analytic starting point of this paper is the long chain of agents connecting donors in rich countries with beneficiaries in poor countries, making aid a contestable rent for recipients at both the international and the domestic levels. Thus, rent seeking can distract attention and divert resources from more important sources of long-term progress. Moreover, there are serious incentive problems on the donor side of the relationship. Empirically, the effects seem quite heterogeneous and hence more research is needed to further our understanding of this complex system.

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Buying Influence: Aid Fungibility in a Strategic Perspective

Cited by 10 publications

References 19 publications

Does Funding From Donors Displace Government Spending For Health In Developing Countries?

Does Funding From Donors Displace Government Spending For Health In Developing Countries?

Dancing to the Donors' Tune? Policy Choice in Aid‐Dependent Countries

Rents and the political economy of development aid

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