IDEAS home Printed from https://ideas.repec.org/p/rut/rutres/200628.html
   My bibliography  Save this paper

The Hope for Hysteresis in Foreign Aid

Author

Listed:
  • Gil S. Epstein

    (Bar-Ilan University)

  • Ira N Gang

    (Rutgers University)

Abstract

We argue that a purpose of foreign aid is to whet the appetite of the recipient in order to bring about a long term commitment to what the donor perceives as a need, but which the recipient may rank lower down on his list of undertakings, or may be sufficiently resource constrained as to be unable to start the project. In other words, we explore the implications and conditions for success of a donor trying to affect long-term recipient policy by creating path dependence. Once the project is established, aid can be removed without reversing the process that has been set in motion. Quite simply, the donor wants its project to stick. We place a formal structure on this.

Suggested Citation

  • Gil S. Epstein & Ira N Gang, 2006. "The Hope for Hysteresis in Foreign Aid," Departmental Working Papers 200628, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200628
    as

    Download full text from publisher

    File URL: http://www.sas.rutgers.edu/virtual/snde/wp/2006-28.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark McGillivray & Akhter Ahmed, 1999. "Aid, adjustment and public sector fiscal behaviour in the Philippines," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 4(2), pages 381-391.
    2. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-265, May.
    3. Ira N. Gang & Haider Ali Khan, 1999. "Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes," Empirical Economics, Springer, vol. 24(1), pages 121-134.
    4. M. McGillvray & O. Morrissey, 2001. "Aid Illusion and Public Sector Behaviour," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 118-136.
    5. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-445, June.
    6. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
    7. Rune Jansen Hagen, 2006. "Buying Influence: Aid Fungibility in a Strategic Perspective," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 267-284, May.
    8. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, vol. 20(10), pages 1481-1488, October.
    9. Zafar Iqbal, 1997. "Foreign Aid and the Public Sector: A Model of Fiscal Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129.
    10. Gil S. Epstein & Ira N. Gang, 2006. "Decentralizing Aid with Interested Parties," WIDER Working Paper Series RP2006-06, World Institute for Development Economic Research (UNU-WIDER).
    11. Gil S. Epstein & Ira N. Gang, 2006. "Contests, NGOs, and Decentralizing Aid," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 285-296, May.
    12. 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.
    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. Simon Feeny & Mark McGillivray, 2002. "Aid, Public Sector Fiscal Behaviour and Developing Country Debt," WIDER Working Paper Series DP2002-40, World Institute for Development Economic Research (UNU-WIDER).
    2. Feeny, Simon, 2007. "Foreign Aid and Fiscal Governance in Melanesia," World Development, Elsevier, vol. 35(3), pages 439-453, March.
    3. Feeny, Simon & McGillivray, Mark, 2010. "Aid and public sector fiscal behaviour in failing states," Economic Modelling, Elsevier, vol. 27(5), pages 1006-1016, September.
    4. repec:bla:rdevec:v:13:y:2009:i:s1:p:526-542 is not listed on IDEAS
    5. Simon Feeny & Mark McGillivray, 2003. "Aid and public sector borrowing in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 989-998.
    6. 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.
    7. Epstein, Gil S. & Gang, Ira N., 2009. "Good governance and good aid allocation," Journal of Development Economics, Elsevier, vol. 89(1), pages 12-18, May.
    8. Susana Franco‐Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 429-441, April.
    9. Mark McGillivray & Oliver Morrissey, 2001. "Fiscal Effects of Aid," WIDER Working Paper Series DP2001-61, World Institute for Development Economic Research (UNU-WIDER).
    10. Ira N. Gang & Haider Ali Khan, 1999. "Foreign aid and fiscal behavior in a bounded rationality model: Different policy regimes," Empirical Economics, Springer, vol. 24(1), pages 121-134.
    11. Neva Novarro, 2004. "Do Policy-Makers Earmark to Constrain their Successors? The Case of Environmental Earmarking," Working Papers 0408, College of the Holy Cross, Department of Economics.
    12. Mark McGillivray & Bazoumana Ouattara, 2003. "Aid, Debt Burden and Government Fiscal Behaviour: A New Model Applied to Côte d'Ivoire," WIDER Working Paper Series DP2003-33, World Institute for Development Economic Research (UNU-WIDER).
    13. Gil S. Epstein & Ira N. Gang, 2016. "Taxation, social protection, and governance decentralization," WIDER Working Paper Series wp-2016-101, World Institute for Development Economic Research (UNU-WIDER).
    14. Zafar Iqbal, 1997. "Foreign Aid and the Public Sector: A Model of Fiscal Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129.
    15. 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).
    16. 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.
    17. Swaroop, Vinaya & Jha, Shikha & Sunil Rajkumar, Andrew, 2000. "Fiscal effects of foreign aid in a federal system of governance: The case of India," Journal of Public Economics, Elsevier, vol. 77(3), pages 307-330, September.
    18. Gupta, Kanhaya L. & Lensink, Robert, 1995. "Foreign aid and the public sector : a simulation approach," Research Report 95D21, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    19. 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.
    20. Slobodan Djajić, 2008. "Foreign Aid, Infrastructure Development, and Welfare: An Intertemporal Analysis," WIDER Working Paper Series RP2008-64, World Institute for Development Economic Research (UNU-WIDER).
    21. George Mavrotas & Bazoumana Ouattara, 2003. "The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A Model," WIDER Working Paper Series DP2003-11, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    foreign aid; rent seeking; governance; decentralization;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid

    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:rut:rutres:200628. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/derutus.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.