The Costs of Favoritism: Is Politically-Driven Aid Less Effective?

46 Pages Posted: 22 Mar 2010

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

James Raymond Vreeland

Yale University - Department of Political Science

Eric Werker

Harvard Business School

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Abstract

As is now well documented, aid is given for both political as well as economic reasons. The conventional wisdom is that politically-motivated aid is less effective in promoting developmental objectives. We examine the ex-post performance ratings of World Bank projects and generally find that projects that are potentially politically motivated – such as those granted to governments holding a non-permanent seat on the United Nations Security Council or an Executive Directorship at the World Bank – are no more likely, on average, to get a negative quality rating than other projects. When aid is given to Security Council members with higher short-term debt, however, a negative quality rating is more likely. So we find evidence that World Bank project quality suffers as a consequence of political influence only when the recipient country is economically vulnerable in the first place.

Keywords: World Bank, aid effectiveness, political influence, United Nations Security Council

JEL Classification: O19, O11, F35

Suggested Citation

Dreher, Axel and Klasen, Stephan and Vreeland, James Raymond and Werker, Eric, The Costs of Favoritism: Is Politically-Driven Aid Less Effective?. IZA Discussion Paper No. 4820. Available at SSRN: https://ssrn.com/abstract=1575853

Axel Dreher (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49-551-397303 (Phone)
+49-551-397302 (Fax)

HOME PAGE: www.vwl.wiso.uni-goettingen.de/klasen.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

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

James Raymond Vreeland

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432 6196 (Phone)
203-432 6196 (Fax)

Eric Werker

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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