Good Governance and Good Aid Allocation

25 Pages Posted: 14 Jul 2008

See all articles by Gil S. Epstein

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Ira N. Gang

Rutgers University - Economics Department; IZA Institute of Labor Economics

Abstract

We model the aid allocation decision where the donor government has announced that good governance is the criterion for receiving aid. Potential recipients must compete for the aid funds. The structure of the competition is important to the donor in terms of achieving good governance, and to the recipients in terms of what they receive. The leaders of potential recipient countries look at aid availability through this contest as part of the competing objectives they face - some good, some not good. The donor country prefers a contest under which the aid will only go to one country while the leaders of the receiving countries prefer that each country obtains the proportion of aid relative to its governance quality. If poverty reduction is an independent goal as well, a poverty trap may be created. With good governance as a criterion, donors may work through both bilateral and multilateral agencies.

Keywords: foreign aid, governance, decentralization, rent seeking

JEL Classification: O10, O19, F35, O11, C23, O47, E21, E22

Suggested Citation

Epstein, Gil S. and Gang, Ira N., Good Governance and Good Aid Allocation. IZA Discussion Paper No. 3585. Available at SSRN: https://ssrn.com/abstract=1158982 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Gil S. Epstein (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 531 8937 (Phone)
+972 3 535 3180 (Fax)

HOME PAGE: http://faculty.biu.ac.il/~epsteig/

IZA Institute of Labor Economics ( email )

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Germany

University College London - CReAM - Centre for Research and Analysis of Migration ( email )

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Ira N. Gang

Rutgers University - Economics Department ( email )

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ECONOMICS, New Jersey Hall, Rutgers University
New Brunswick, NJ 08901-1248
United States
732-932-7363 (Phone)
732-932-7416 (Fax)

HOME PAGE: http://econweb.rutgers.edu/gang/research

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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