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on Africa |
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Issue of 2006‒07‒21
three papers chosen by Suzanne McCoskey Foreign Service Institute, US Department of State |
| By: | David Roodman |
| Abstract: | Much public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the effectiveness of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs, the donor’s aid and a recipient-side resource, and two outputs, namely, development and “throughput,” which proxies for the private benefits for both donor and recipient of implementing projects, from kickbacks to career rewards for disbursing. The donor’s allocation of aid across projects is taken as exogenous while the recipient’s allocation of its resource is modeled and subject to a budget constraint. Unless the recipient cares purely about development, increasing aid can reduce development in some circumstances. Sunk costs, representing the administrative burden for the recipient of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipient’s resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. With Cobb-Douglas production, a threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projects—but the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects. |
| Keywords: | Foreign aid, donor coordination, project proliferation, absorptive capacity |
| JEL: | F35 O20 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:75&r=afr |
| By: | David Roodman |
| Abstract: | The proliferation of aid projects may overburden recipient governments with reporting requirements, donor visits, and other administrative overhead, siphoning off scarce domestic recipient resources, such as tax revenue or the time of skilled government officials, from directly productive use. But greater oversight may also improve the administration of projects, increasing development. I present a model of aid projects that reflects both sides of this coin. It posits a distinction between national-level governance and project-level governance. A donor can raise project-level governance above the baseline national level by requiring oversight activities of the recipient, although the benefits from doing so are less where national-level governance is already high. The model assumes that larger projects demand proportionally less oversight activity from the recipient. Comparative statics analysis suggests that to maximize development, projects should be larger where aid volume is higher, to avoid overburdening recipient administrative capacity; where recipient resources are scarcer, for the same reason; and where national governance is good, since the marginal benefit of oversight is then lower. A multi-donor generalization shows how donors that are imperfectly altruistic, caring most about the success of their own projects, will tend to sink into competitive proliferation, in which each donor subdivides its aid budget into smaller projects to raise the marginal productivity of the recipient’s resources in those projects and attract them away from other donors. The inefficiency arises from the lack of a market among donors for recipient resources. In a Nash equilibrium, competitive proliferation reduces overall development. But the smallest (selfish) donors can gain. This would discourage them from cooperating with other donors to contain competitive proliferation. |
| Keywords: | Foreign aid, donor coordination, project proliferation |
| JEL: | F35 O20 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:89&r=afr |
| By: | Michael McBride (Department of Economics, University of California-Irvine); Stergios Skaperdas (Department of Economics, University of California-Irvine) |
| Abstract: | We examine two factors that help explain the prevalence of conflict in low-income countries: that adversaries cannot enforce long-term contracts in arms, and that open conflict alters the future strategic positions of the adversaries differently than does peace. Using an infinite horizon model, we show the conditions under which adversaries will not be able to sustain short-term contracts even though doing so is Pareto superior to open conflict. Conflict arises because adversaries attempt to gain future strategic supremacy that only victory in conflict brings. Lower incomes or wages, as well as higher discount factors and the less destructive conflict is, the higher is the likelihood of war. |
| JEL: | C70 D74 O10 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:050606&r=afr |