IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/105255.html
   My bibliography  Save this paper

How information about foreign aid affects public spending decisions: evidence from a field experiment in Malawi

Author

Listed:
  • Seim, Brigitte
  • Jablonski, Ryan S.
  • Ahlback, Johan

Abstract

Does foreign aid shift public spending? Many worry that aid will be “fungible” in the sense that govern- ments reallocate public funds in response to aid. If so, this could undermine development, increase the poorest’s dependency on donors, and free resources for patronage. Yet, there is little agreement about the scale or consequences of such effects. We conducted an experiment with 460 elected politicians in Malawi. We provided information about foreign aid projects in local schools to these politicians. After- wards, politicians made real decisions about which schools to target with development goods. Politicians who received the aid information treatment were 18% less likely to target schools with existing aid. These effects increase to 22-29% when the information was plausibly novel. We find little evidence that aid information heightens targeting of political supporters or family members, or dampens support to the neediest. Instead the evidence indicates politicians allocate the development goods in line with equity concerns.

Suggested Citation

  • Seim, Brigitte & Jablonski, Ryan S. & Ahlback, Johan, 2020. "How information about foreign aid affects public spending decisions: evidence from a field experiment in Malawi," LSE Research Online Documents on Economics 105255, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:105255
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/105255/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Łukasz Marć, 2017. "The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 627-663, August.
    2. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-194, March.
    3. van de Walle, Dominique & Mu, Ren, 2007. "Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam," Journal of Development Economics, Elsevier, vol. 84(2), pages 667-685, November.
    4. Eric Werker & Faisal Z. Ahmed & Charles Cohen, 2009. "How Is Foreign Aid Spent? Evidence from a Natural Experiment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 225-244, July.
    5. Robin Burgess & Remi Jedwab & Edward Miguel & Ameet Morjaria & Gerard Padró i Miquel, 2015. "The Value of Democracy: Evidence from Road Building in Kenya," American Economic Review, American Economic Association, vol. 105(6), pages 1817-1851, June.
    6. Chatterjee Santanu & Giuliano Paola & Kaya Ilker, 2012. "Where Has All the Money Gone? Foreign Aid and the Composition of Government Spending," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-36, August.
    7. Nicolas Van de Sijpe, 2013. "Is Foreign Aid Fungible? Evidence from the Education and Health Sectors," The World Bank Economic Review, World Bank, vol. 27(2), pages 320-356.
    8. Razvan Vlaicu, 2008. "Democracy, Credibility, and Clientelism," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(2), pages 371-406, October.
    9. Wagstaff, Adam, 2011. "Fungibility and the impact of development assistance: Evidence from Vietnam's health sector," Journal of Development Economics, Elsevier, vol. 94(1), pages 62-73, January.
    10. Zunera Rana & Dirk-Jan Koch, 2020. "Is it time to ‘decolonise’ the fungibility debate?," Third World Quarterly, Taylor & Francis Journals, vol. 41(1), pages 42-57, January.
    11. William Easterly, 2009. "Can the West Save Africa?," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 373-447, June.
    12. Briggs, Ryan C., 2017. "Does Foreign Aid Target the Poorest?," International Organization, Cambridge University Press, vol. 71(1), pages 187-206, January.
    13. Kevin Morrison, 2007. "Natural resources, aid, and democratization: A best-case scenario," Public Choice, Springer, vol. 131(3), pages 365-386, June.
    14. Findley, Michael G. & Harris, Adam S. & Milner, Helen V. & Nielson, Daniel L., 2017. "Who Controls Foreign Aid? Elite versus Public Perceptions of Donor Influence in Aid-Dependent Uganda," International Organization, Cambridge University Press, vol. 71(4), pages 633-663, October.
    15. Karthik Muralidharan & Mauricio Romero & Kaspar Wüthrich, 2019. "Factorial Designs, Model Selection, and (Incorrect) Inference in Randomized Experiments," NBER Working Papers 26562, National Bureau of Economic Research, Inc.
    16. Morrissey, Oliver, 2015. "Aid and Government Fiscal Behavior: Assessing Recent Evidence," World Development, Elsevier, vol. 69(C), pages 98-105.
    17. Karen L. Remmer, 2004. "Does Foreign Aid Promote the Expansion of Government?," American Journal of Political Science, John Wiley & Sons, vol. 48(1), pages 77-92, January.
    18. Michael Clark & Domino Determann & Stavros Petrou & Domenico Moro & Esther Bekker-Grob, 2014. "Discrete Choice Experiments in Health Economics: A Review of the Literature," PharmacoEconomics, Springer, vol. 32(9), pages 883-902, September.
    19. Hoyos, David, 2010. "The state of the art of environmental valuation with discrete choice experiments," Ecological Economics, Elsevier, vol. 69(8), pages 1595-1603, June.
    20. World Bank, 2010. "The Education System in Malawi," World Bank Publications - Books, The World Bank Group, number 5937.
    21. repec:bpj:bejmac:v:12:y:2012:i:1:n:26 is not listed on IDEAS
    22. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," The World Bank Economic Review, World Bank, vol. 12(1), pages 29-58, January.
    23. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428, April.
    24. de Mesquita, Bruce Bueno & Smith, Alastair, 2009. "A Political Economy of Aid," International Organization, Cambridge University Press, vol. 63(2), pages 309-340, April.
    25. Gibson, Clark C. & Andersson, Krister & Ostrom, The late Elinor & Shivakumar, Sujai, 2005. "The Samaritan's Dilemma: The Political Economy of Development Aid," OUP Catalogue, Oxford University Press, number 9780199278855.
    26. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seim, Brigitte & Jablonski, Ryan & Ahlbäck, Johan, 2020. "How information about foreign aid affects public spending decisions: Evidence from a field experiment in Malawi," Journal of Development Economics, Elsevier, vol. 146(C).
    2. Łukasz Marć, 2015. "The impact of aid on total government expenditures: New evidence on fungibility," WIDER Working Paper Series wp-2015-010, World Institute for Development Economic Research (UNU-WIDER).
    3. Łukasz Marć, 2017. "The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 627-663, August.
    4. Langlotz, Sarah & Potrafke, Niklas, 2019. "Does development aid increase military expenditure?," Journal of Comparative Economics, Elsevier, vol. 47(3), pages 735-757.
    5. Joseph L. Dieleman & Michael Hanlon, 2014. "Measuring The Displacement And Replacement Of Government Health Expenditure," Health Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 129-140, February.
    6. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    7. Lukasz Marc, 2012. "New Evidence on Fungibility at the Aggregate Level," Tinbergen Institute Discussion Papers 12-083/2, Tinbergen Institute.
    8. Furukawa, Mitsuaki & Takahata, Junichiro, 2013. "Is GBS Still a Preferable Aid Modality?," Working Papers 50, JICA Research Institute.
    9. Dreher, Axel & Lang, Valentin & Reinsberg, Bernhard, 2024. "Aid effectiveness and donor motives," World Development, Elsevier, vol. 176(C).
    10. Cohen, Isabelle, 2023. "Crowd in or crowd out? The subnational fiscal response to aid," World Development, Elsevier, vol. 164(C).
    11. Zhuang Hong & Wang Miao & Daniels Joseph, 2020. "Foreign Aid and Adolescent Fertility Rate: Cross-Country Evidence," Journal of Globalization and Development, De Gruyter, vol. 11(1), pages 1-35, June.
    12. Rana, Zunera & Koch, Dirk-Jan, 2020. "Why fungibility of development aid can be good news: Pakistan case study," World Development Perspectives, Elsevier, vol. 20(C).
    13. Arnab Acharya & Melisa Martínez-Álvarez, 2012. "Aid Effectiveness in the Health Sector," WIDER Working Paper Series wp-2012-069, World Institute for Development Economic Research (UNU-WIDER).
    14. Oliver Morrissey, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," WIDER Working Paper Series wp-2012-001, World Institute for Development Economic Research (UNU-WIDER).
    15. Acharya, Arnab & Martínez-Álvarez, Melisa, 2012. "Aid Effectiveness in the Health Sector," WIDER Working Paper Series 069, World Institute for Development Economic Research (UNU-WIDER).
    16. repec:unu:wpaper:wp2012-01 is not listed on IDEAS
    17. Morrissey, Oliver, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," WIDER Working Paper Series 001, World Institute for Development Economic Research (UNU-WIDER).
    18. Zunera Ahmad Rana & Dirk‐Jan Koch, 2022. "What happens to aid fungibility when the recipient government takes control? Effects of aid ownership in Rwanda," Development Policy Review, Overseas Development Institute, vol. 40(5), September.
    19. Wagstaff, Adam, 2011. "Fungibility and the impact of development assistance: Evidence from Vietnam's health sector," Journal of Development Economics, Elsevier, vol. 94(1), pages 62-73, January.
    20. Fuchs, Andreas & Dreher, Axel & Hodler, Roland & Parks, Bradley C. & Raschky, Paul, 2015. "Aid on Demand: African Leaders and the Geography of China s Foreign Assistance," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112838, Verein für Socialpolitik / German Economic Association.
    21. van de Walle, Dominique & Mu, Ren, 2007. "Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam," Journal of Development Economics, Elsevier, vol. 84(2), pages 667-685, November.

    More about this item

    Keywords

    foreign aid; public spending; Malawi; fungibility; international development; Africa;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J1 - Labor and Demographic Economics - - Demographic Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:105255. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.