The political economy of development assistance: peril to government quality dynamics in Africa

Simplice A, Asongu (2012): The political economy of development assistance: peril to government quality dynamics in Africa.

Abstract

This paper assesses the effectiveness of foreign aid in improving government institutions in 52 African countries using updated data(1996-2010). Findings suggest development assistance deteriorates government quality dynamics of corruption-control, political-stability, rule of law, regulation quality, voice and accountability and government effectiveness. It is therefore a momentous epoque to solve the second tragedy of foreign aid; high time economists and policy makers start rethinking the models and theories on which foreign aid is based. In the meantime, it is up to people who really care about the poor to hold aid agencies accountable for results.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Aid; Political Economy; Development; Africa
• Subjects: F - International Economics > F3 - International Finance > F35 - Foreign Aid; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F50 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B20 - General

References

Addison, T., Mavrotas, G., & McGillivray, M., (2005), “Development Assistance and Development Finance: Evidence and Global Policy Agendas”, Journal of International Development, 17, pp.819-836.

Agbor, J.A., (2011), “How Does Colonial Origin Matter for Economic Performance in Sub-Saharan Africa”, World Institute for Development Economics Research, Working Paper, No. 2011/27.

Alesina, A., & Weder, B., (2002), “Do Corrupt Governments Receive Less Foreign Aid?” American Economic Review, 92, pp.1126-1137.

Alesina, A., & Dollar, D., (2000), “ Who gives Foreign Aid to Whom and Why?” Journal of Economic Growth, 5, pp. 33-64.

Asongu, S. A., (2011a). “Law, finance, economic growth and welfare: why does legal origin matter?”, MPRA Paper No. 33868.

Asongu, S. A.,(2011b). “Law, finance and investment: does legal origin matter?”, MPRA Paper No. 34698.

Asongu, S. A., (2011c). “Law and investment in Africa”, MPRA Paper No.34700.

Asongu, S. A.,(2011d). “Law and finance in Africa”, MPRA Paper No. 34080.

Asongu, S.A., (2011e). “Why do French civil-law countries have higher levels of financial efficiency?”, MPRA Paper No.33950.

Boone, P.,(1996), “Politics and Effectiveness of Foreign Aid,” European Economic Review, 40, pp.289-329.

Burnside, C., & Dollar, D., (1998), “Aid, the incentive regime and poverty reduction,” Policy Research Working Paper, No. 1937, The World Bank.

Burnside, C., & Dollar, D., (2000), “Aid, Policies and Growth”, American Economic Review, 90(4), pp.847-868.

Beck, T., Demirgüç-Kunt, A., & Levine, R.,(2003). “Law and finance: why does legal origin matter?”, Journal of Comparative Economics, 31, pp. 653-675.

Chenery, H. B., & Strout, A. M., (1966), “Foreign Assistance and Economic Development”, American Economic Review, 56, pp. 679-733.

Clemens, M.A., Radelet, S., & Bhavnani, R., (2004), “Counting Chickens When They Hatch: the Short-Term Effect of Aid on Growth”, Center for Global Development Working Paper No. 44.

Collier, P.,& Dollar, D., (2001), “Can the World Cut Poverty in Half? How Policy Reform and Effective Aid can Meet International Development Goals,” World Development, 29(111), pp.1787-1802.

Collier, P., Hoeffler, A., & Pattillo, C.,(2001), “Flight Capital as a Portfolio Choice”, The World Bank Economic Review, 15, pp. 55-80.

Commission for Africa(2005), “Our Common Interest: Report of the Commission for Africa”, Blair Commission.

Dalgaard, C., & Hansen, H., (2001), “On Aid, Growth and Good Policies,” Journal of Development Studies, 37, pp.17-41.

Devarajan, S., Miller, M., & Swanson, E., (2002), “Goals for Development: History, Prospects and Costs”, World Bank Policy Research Paper No. 2819.

Dixi, A., (2004), Lawlessness and Economics: Alternative Modes of Governance. Princeton: University Press.

Easterly, W.,(1999), “The Ghost of Financing Gap: Testing the Growth Model Used in the International Financial Institutions”, Journal of Development Economics, 60, pp. 423-438.

Easterly, W.,(2005a), “Can foreign aid save Africa”, Saint John’s University.

Easterly, W., (2005b), “ What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans,” Journal of Development Economics, 76, pp. 1-22.

Easterly, W, Levine, R., & Roodman, D., (2003), “ New Data, New Doubts: A Comment on Burnside and Dollar’s “Aid, Policies and Growth 2000’,” American Economic Review, NBER Working Paper, No. 9846.

Feeny, S., (2003),“The impact of foreign aid on poverty and human well-being in Papua New Guinea”, Asia-Pacific Development Journal, 10,(2).

Fielding, D., McGillivray, M., & Torres, S., (2006), “ A Wider Approach to Aid Effectiveness: Correlated Impacts on Health, Wealth, Fertility and Education”, The World Institute for Development Economics Research(UNU-WIDER).

Filmer, D., Hammer, J., & Pritchett, L., (2000), “Weak Links in the Chain: A Diagnosis of Health Policy in Poor Countries,” The World Bank Research Observer, 15(2), pp.199-224.

Ghura, D., Hadjimichael, M.T., Mahleisen, M., Nord, R., & Ucer, E.M., (1995), “Sub-Saharan Africa: Growth, Savings and Investment, 1986-93”, IMF Occasional Paper No. 118.

Gomane, K., Morrissey, O., Mosley, P., & Verschoor, A., (2003), “Aid, pro-poor Government Spending and Welfare”, CREDIT Working Paper 03/01.

Guillaumont, P., & Chauvet, L., (2001), “Aid and Performance: A Reassessment,” Journal of Development Studies, 37, pp.66-92.

Hayek, F.A.,(1988), The Fatal Conceit: The Errors of Socialism, Edited by W.W. Bartley III, Chicago: University of Chicago Press.

IMF (2005, June), “The IMF Approach to Promoting Good Governance and Combating Corruption-A Guide”, International Monetary Fund.

Ishfaq, M.,(2004), “Aid effectiveness, debt capacity and debt management in the economy of Pakistan”, a PhD dissertation at Quad-e-Azam University, Islamabad.

Knack, S., (2001), “Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests”, Southern Economic Journal, 68(2), pp.310-329.

Kraay, A., & Raddatz, C., (2005), “Poverty Traps, Aids and Growth”, The World Bank.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W., (1997). “Legal Determinants of External Finance”, Journal of Finance, 52, pp. 1131-1150.

Masud, N., & Yontcheva, B., (2005), “Does Foreign Aid Reduce Poverty? Empirical Evidence from Nongovernmental and Bilateral Aid”, IMF Working Paper, 05/100.

Mosley, P., Hudson, J., & Horrell, S., (1992), “Aid, The Public Sector and The Market in Less Developed Countries: A Return to The Scene of Crime”, Journal of International Development, 4, pp.139-150.

Mosley, P., Hudson, J., & Verschoor, A., (2004), “Aid, Poverty Reduction and the ‘new’ Conditionality”, Economic Journal, 114, F217–F243.

Murphy, K., Shleifer, A., & Vishny, R., (1989), “Industrialization and the Big Push”, Journal of Political Economy, 97(5), pp.1003-1026.

Ndikumana, L., & Mina Baliamoune-Lutz, M., (2008), “Corruption and Growth: Exploring the Investment Channel”, University of Massachusetts, Department of Economics, Working Paper, No. 2008-08.

Pedersen, K. P., (1996), “Aid, Investment and Incentives,” Scandinavian Journal of Economics, 98(3), pp.423-438.

Prichett, L., & Woolcock, M., (2004), “Solutions When the Solution Is the Problem: Arraying the Disarray in Development”, World Development, 32(2), pp.191-212.

Reichel, R., (1995), “Development, Aid, Savings and Growth in the 1980s: A Cross-Sectional Analysis,” Savings and Development, 19(3), pp.279-296.

Rosenstein-Rodan, P.,(1943), “Problem of Industrialization in Eastern and South-Eastern Europe”, Economic Journal, 53, pp.202–211.

Rostow, W.W., (1960), The Stages of Economic Growth: A Non-Communist Manifesto.

Sachs, J.D.,(2005), The End of Poverty: Economic Possibilities for Our Time, New York: The Penguin Press.

Svensson, J., (2000), “Foreign Aid and Rent-Seeking”, Journal of International Economics, 51(2), pp. 437-461.

Stulz, R., (1999), “Globalization, corporate finance, and the cost of capital”, Journal of Applied Corporate Finance, 12, pp. 8–25.

Van de Walle, N., (2001), African Economics and the Politics of Permanent Crisis, 1979-1999, Cambridge UK, Cambridge University Press 2001.