Information Transmission and Ownership Consolidation in Aid Programs
37 Pages Posted: 1 Nov 2013
Date Written: October 31, 2013
This paper explores the role of information transmission in explaining donors’ choice between project aid and budget support. Budget support increases the involvement of recipient governments in the decision-making process and can thus be an example of a “delegation-scheme.” Conversely, project aid represents a more “centralized” type of aid. According to the theory, when countries’ local knowledge is more important than donors’ information, recipient countries’ discretion in the choice of policies should be increased (delegation). Conversely, there should be less freedom in designing policies when donors’ information is more relevant (centralization). The empirical analysis confirms that the importance of donors’ private information influences the amount of project aid, while recipients’ local knowledge is positively correlated with the amount of budget support.
Keywords: delegation, communication, ownership, foreign aid
JEL Classification: C230, D820, F330, O100
Suggested Citation: Suggested Citation