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Foreign aid and market-liberalizing reform

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Author Info
Heckelman, Jac
Knack, Stephen

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Abstract

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3557.

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Date of creation: 01 Apr 2005
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Handle: RePEc:wbk:wbrwps:3557

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Keywords: Achieving Shared Growth; Governance Indicators; Environmental Economics&Policies; Development Economics&Aid Effectiveness; School Health;

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  30. Omotunde Johnson, 2004. "How will good economic policy environments emerge in Africa?," Journal of Policy Reform, Taylor and Francis Journals, vol. 7(3), pages 151-164, September. [Downloadable!] (restricted)
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  33. Stefan G. Koeberle, 2003. "Should Policy-Based Lending Still Involve Conditionality?," World Bank Research Observer, Oxford University Press, vol. 18(2), pages 249-273.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Heinemann, Friedrich & Tanz, Benjamin, 2008. "The Impact of Trust on Reforms," ZEW Discussion Papers 08-053, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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  2. Heckelman, Jac C. & Powell, Benjamin, 2008. "Corruption and the Institutional Environment for Growth," Working Papers 2008-6, Suffolk University, Department of Economics. [Downloadable!]
  3. Martin Gassebner & Noel Gaston & Michael Lamla, 2008. "The Inverse Domino Effect: Are Economic Reforms Contagious?," KOF Working papers 08-187, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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  4. Gil S. Epstein & Ira N Gang, 2006. "Decentralizing Aid with Interested Parties," Departmental Working Papers 200629, Rutgers University, Department of Economics. [Downloadable!]
    Other versions:
  5. Epstein, Gil S. & Gang, Ira N., 2008. "Good Governance and Good Aid Allocation," IZA Discussion Papers 3585, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Epstein, Gil S. & Gang, Ira N., 2008. "Poverty and Governance: The Contest for Aid," Working Papers RP2008/76, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  7. Mina Baliamoune-Lutz, 2007. "Institutions, Trade, and Social Cohesion in Fragile States," ICER Working Papers 24-2007, ICER - International Centre for Economic Research. [Downloadable!]
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