Publication: Foreign Aid and Market-Liberalizing Reform
No Thumbnail Available
Published
2008
ISSN
00130427
Date
2012-03-30
Author(s)
Editor(s)
Abstract
Market-oriented economic policies have been strongly linked to faster rates of economic growth. Foreign aid is often provided in part to encourage market-oriented reforms. We analyse the impact of aid on market-liberalizing policy reform, correcting for its potential endogeneity. Results indicate that higher aid slowed reform over the 1980-2000 period, as measured by a broad index of policies. Disaggregating policy into five areas, aid is associated with slower reform in some policy areas but not in others. Disaggregating by decade, the adverse impact of aid on policy reform is much more pronounced for the 1980s than for the 1990s.
Link to Data Set
Digital Object Identifier
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Foreign Aid and Market-Liberalizing Reform(World Bank, Washington, DC, 2005-04)Market-oriented economic policies-reflected in limited economic activity by government, protection of private property rights, sound monetary policy, outward orientation regarding trade and efficient tax and regulatory policy-have been strongly linked to faster rates of economic growth. Foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas. This paper analyzes the impact of aid on market-liberalizing policy reform, correcting for the possible endogeneity of aid. Results indicate that higher aid slowed reform over the 1980-2000 period, as measured by a broad index of policies. Disaggregating policy into five areas, aid is significantly linked to slower reform in some policy areas but not in others. Disaggregating by decade, aid's adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s.Publication Can the World Bank Build Social Capital? The Experience of Social Funds in Malawi and Zambia(2008)Social funds have been one of the main manifestations of the World Bank's move toward promoting projects with a participatory orientation. Supporters of social funds argue that participation in social fund activities builds community social capital. Critics of the Bank's use of social capital argue that it ignores power structures but these critics have focused on the Bank's research rather than its operations. This paper examines 'social capital' in a project context: social funds in Malawi and Zambia. In contrast to the model of collective action suggested by proponents of social funds, it is shown that the nature of community participation is indeed shaped by existing power and social relations. Project identification and execution is led by a small number of people in the community, usually the head teacher in cooperation with the PTA and traditional authorities. The community is then mobilised using the traditional structures of village headmen. Most community members participate actively in making bricks, but passively in decision making. However, this process should be seen as an institutional adaptation to what social funds offer, not elite capture. Most community members are satisfied with the outcome, although the chosen project is not what they would have chosen themselves. Given these processes, social funds do little to build social capital but instead, appear to be users of existing social capital.Publication The Curse of Aid(2008)Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the "curse of natural resources" literature. In this paper, we discuss this effect and document its magnitude. Using panel data for 108 recipient countries in the period 1960-1999, we find that foreign aid has a negative impact on institutions. In particular, if the foreign aid over GDP that a country receives over a period of 5 years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison, we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil.Publication Sovereign Rents and Quality of Tax Policy and Administration(2009)Windfall revenues from foreign aid or natural resource exports can weaken governments' incentives to design or maintain efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator on "efficiency of revenue mobilization." Aid's negative effects on quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Revenues from natural resources are also associated with lower-quality tax systems, but results are somewhat sensitive to the choice of resource dependence indicators, and to a few extreme values in the data. Disaggregating by resource type, revenues from fuel exports are found to be more strongly associated than revenues from metals and ores exports with inefficient tax systems.Publication Globalization, Economic Shocks, and Internal Armed Conflict(2008)Critics of trade liberalization argue that globalization increases countries' vulnerability to economic shocks and hence may exacerbate domestic social conflict. Such social conflict may also be transformed into armed conflict. Others argue that globalization promotes economic growth and reduces poverty, which leads to a reduction in the risk of internal conflict. Several studies find trade to reduce the risk of interstate conflict. This article investigates the impact of trade and trade shocks on the risk of intrastate conflict. A set of operationalizations of economic shock is developed and used to analyze the risk of conflicts that involve at least 25 battle deaths per year. The analysis finds no robust evidence for a direct relationship between trade openness, trade shocks, and the risk of armed conflict. There is somewhat more basis for concluding that globalization affects the risk indirectly through its effect on long- and short-term growth. In the long run, trade-induced growth reduces the risk of domestic conflict.
Users also downloaded
Showing related downloaded files
No results found.