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Project Aid or Budget Aid? The Interests of Governments and Financial Institutions

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  • Hefeker, Carsten
Abstract
The paper compares different aid policy instruments and their effect on the target group. Starting from a situation where interest groups compete for the resources of the government, international financial institutions aim to change the policy outcome. They can either directly support one group or condition their financial help to the government on its policy. Apart from a normative analysis which policy is more adequate to help one group, the paper also asks what happens if the IFI is driven by bureaucratic selfinterest, and whether this distort policies.

Suggested Citation

  • Hefeker, Carsten, 2005. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Discussion Paper Series 26381, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26381
    DOI: 10.22004/ag.econ.26381
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    References listed on IDEAS

    as
    1. Mr. Wolfgang Mayer & Mr. Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 2005/121, International Monetary Fund.
    2. Robert K. Fleck & Christopher Kilby, 2006. "World Bank Independence: A Model and Statistical Analysis of US Influence," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 224-240, May.
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    13. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    14. Carsten Hefeker & Katharina Michaelowa, 2005. "Can process conditionality enhance aid effectiveness?," Public Choice, Springer, vol. 122(1), pages 159-175, January.
    15. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    16. Lahiri, Sajal & Raimondos-Moller, Paschalis, 1999. "Special interest politics and aid fungibility," Economics Discussion Papers 10001, University of Essex, Department of Economics.
    17. Mr. Peter S. Heller & Mr. Sanjeev Gupta, 2002. "Challenges in Expanding Development Assistance," IMF Policy Discussion Papers 2002/005, International Monetary Fund.
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    19. Mr. Peter Isard & Allan Drazen, 2004. "Can Public Discussion Enhance Program Ownership?," IMF Working Papers 2004/163, International Monetary Fund.
    20. Axel Dreher & Nathan Jensen, 2003. "Independent Actor or Agent? An Empirical Analysis of the impact of US interests on IMF Conditions," International Finance 0310004, University Library of Munich, Germany, revised 08 Jan 2004.
    21. Mr. Tito Cordella & Mr. Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 2003/088, International Monetary Fund.
    22. Easterly, William, 2005. "What did structural adjustment adjust?: The association of policies and growth with repeated IMF and World Bank adjustment loans," Journal of Development Economics, Elsevier, vol. 76(1), pages 1-22, February.
    23. Michaelowa, Katharina & Hefeker, Carsten, 2003. "Can Process Conditionality Enhance Aid Effectiveness? The Role of Bureaucratic Interest and Public Pressure," HWWA Discussion Papers 239, Hamburg Institute of International Economics (HWWA).
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    Cited by:

    1. Paul Clist & Alessia Isopi & Oliver Morrissey, 2012. "Selectivity on aid modality: Determinants of budget support from multilateral donors," The Review of International Organizations, Springer, vol. 7(3), pages 267-284, September.
    2. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    3. Sanjay Jain, 2007. "Project Assistance versus Budget Support: An Incentive-Theoretic Analysis of Aid Conditionality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 694-719, December.
    4. Ivo Bischoff & Frédéric Blaeschke, 2012. "Window-Dressing and Lobbying in Performance-Budgeting: a Model for the Public Sector," MAGKS Papers on Economics 201212, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Izabela Jelovac & Frieda Vandeninden, 2008. "How should donors give foreign aid? Project aid versus budget support," Post-Print halshs-00293130, HAL.
    6. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
    7. Furukawa, Mitsuaki & Takahata, Junichiro, 2013. "Is GBS Still a Preferable Aid Modality?," Working Papers 50, JICA Research Institute.

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    More about this item

    Keywords

    Financial Economics; Political Economy;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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