Policy argument for aid structural adjustment programs use aid to change

Policy argument for aid structural adjustment

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Policy argument for aid : structural adjustment programs; use aid to change policies (conditions put on aid being given) ± conditionality But: - Ex ante conditionality (voorwaarden) doesn’t work; not done, adverse effects, under pressure it does not work! - Donors keep on disbursing (uitbetaling) aid when conditions are not met Recipient has no incentive to maintain reforms if aid is temporary (time inconsistency ) and donor reluctant to punish reversals. Four possible outcomes if donor attempts to “buy” policy reform : – desired policy changes not implemented (Zambia under Kaunda) – implemented, but also in the no aid counterfactual (Vietnam,Uganda, Mozambique) – policy change is due to donor pressure, but reversed (African trade reforms; Kenyan maize marketing) – policy change effected by donor and sustained Making it effective is probably feasible, but not desirable . It would undermine: – the incentives to develop capabilities for policy analysis, – ownership, – accountability Downloaded by Vicky Gupta ([email protected]) lOMoARcPSD|3929542
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Selectivity argument for aid ex post conditionality : donors do not try to change polices but they are selective in awarding aid. • Under selectivity aid can have two new roles: – signalling : if aid tied to success then private agents can economise onmonitoring. Rationale for a donor role: underinvestment of private agents in information about small ,recently reformed economies(e g.. African African risk ratings) ratings). ± selective and select countries who have good circumstances for aid > then investors can use these choices to go to where there is a positive development restraint : easier to resist pressures for policy reversal if aid allocation rule perceived as credible. ± lose aid if you do not continue along the good governance path. Realistic argument for aid: bureaucracy The aid industry benefits from aid so there is little incentive to improve but just a self- sustaining group (cynical argument). International debate (books) Sachs – poverty traps; financial problem Ha-Joon Chang: bad Samaritans; policy argument = need good governance (we got rich through protectionism and now we are telling developing countries that they cannot) James Calderesi; selectivity argument didn’t work very well (aid given to people who are not effective and only care about himself) Paul cullier: bottom billion; aid effectiveness and globalization Easterly: white man’s burden: main argument; development aid is organized top-down (this idea that we know what is good for developing countries is incorrect, need more local involvement). Dambisa Moyo; dead aid = no government aid, some private aid (more financial markets). Aid effectiveness Hard to find a relationship on the macro level but good evidence of positive impact on micro level. Micro-Macro paradox – why?
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