Disbursements of foreign aid are influenced by other agents than the donor and the recipient. When donors enforce conditionality upon recipients who do not implement the conditions, northern companies can suffer from cancellation of their contracts with the recipient when aid dry up. Anticipating this, such companies can influence the donors to disburse the aid even if the recipient has not implemented the conditions. Strategic recipients will use this interdependence to avoid implementing any conditions they are not in favor of. We propose a new model where each of the three agents takes account of each of the two other agent’s actions. In this structure, the recipient’s strategic behavior explains the failure of aid conditionality. 1.

Effectiveness in Sub-Saharan Africa " (RPO 680-18).Contents

This paper is the initial draft summary report of the research project, “Aid and Reform in Africa. ” It summarizes common themes from case studies of ten African countries that have been carried out by a diverse set of scholars and policy-makers. The studies, listed below, are available from the website:

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The links between foreign aid and policies in developing countries have been at the forefront of the policy debate for decades. as the solution to the failures of conditionality. An emerging consensus touts aid selectivity implemented political reforms resulting in more democratic regimes. In recent years, many recipients have I show that donor influence depends on the aid budget being large enough relative to the recipient. I also demonstrate that if aid influences policies, the political equilibrium in democratic recipient countries is likely to change to the disadvantage of the political alternative favoured by the donor. This implies that aid selectivity should be applied cautiously.

This paper examines empirical evidence on the volatility and uncertainty of aid flows, and the main policy implications. Aid is found to be more volatile than fiscal revenues—particularly in highly aid-dependent countries—and mildly procyclical in relation to activity in the recipient country. These findings imply that the current pattern of aid disbursements is welfare-reducing. We also find that uncertainty about aid disbursements is large and that the information content of commitments made by donors is either very small or statistically insignificant. Policies to cope with these features of aid, as well as broader international efforts to reduce the volatility and procyclicality of aid, are briefly discussed. Keywords: external aid, volatility, predictability, IMF-supported programs

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