wage and price control policies in transition economies abstract this paper studies the structural impact of wage and price control policies in transition economies using a two sector three factor small open economy model it illustrates the results quantitatively via simulation exercises at the earlier stage of the transition when labor is immobile a strict control on the price of the nontradables and the wage rate minimizes the fall in employment and output also a more severe control on the price of the nontradables than on the wage rate alleviates the fall in the real wage at negligible costs in lost employment and output at the later stage of the transition when labor becomes mobile the liberalization of the price of the nontradables can proceed faster than that of the wage rate this policy combination increases employment and output and reduces the shortage for the nontradables but lowers the real wage

lobbying by ethnic groups and aid allocation we develop a political economic model of foreign aid allocation each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin and the government accepts political contributions from lobby groups initial per capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium we also examine the effects of changes in the degree of corruption aid fatigue and ethnic composition in the donor country on the allocation of aid

evidence on changes in aid allocation criteria have donors changed their aid allocation criteria over the past three decades toward greater selectivity a frequently stated goal of the international development community using data on how 22 donors allocated their bilateral aid among 147 countries over 1970 2004 the article finds that after the fall of the berlin wall in 1989 and especially in the late 1990s bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries furthermore the sensitivity of aid allocation to the country s size and its debt burden has declined over time these results are robust to different samples and model specifications various econometric techniques and alternative measures of institutional quality while the specific factors causing these changes cannot be identified these presumably include geopolitical and economic concerns and the many changes in the international aid architecture donors still differ greatly in their selectivity this suggests that further multifaceted reforms are needed to ensure even greater selectivity of aid

catalyzing aid the imf and donor behavior in aid allocation the international monetary fund imf has often asserted that its programs encourage aid by signaling policy credibility commonly referred to as aid catalysis our study investigates this claim for sector specific aid and for bilateral and multilateral donors using data on 136 recipient countries for the 1986 2009 period we employ a two part quantitative model to match the donor decision making process consisting of a first stage recipient selection equation and a second stage allocation equation on selected recipients we find strong support that imf programs catalyze aid on aggregate but the evidence varies across different types of aid aid catalysis is stronger and more robust in sectors linked to the imf s core competency areas namely debt related relief and general budget support but weaker and less robust for infrastructure production multisector and humanitarian aid and non existent for health and education across donors imf programs are associated with increases in aid by countries with larger voting shares in the imf such as the united states and japan but less so by countries with few votes or for multilateral agencies this finding is consistent with research in international political economy arguing that the imf s powerful stakeholders drive the organization s decisions and policies taken together our findings emphasize the imf s multi dimensional impact on the global development agenda an erstwhile overlooked factor in studies of aid allocation while refuting the purported positive effects of imf programs on aid for social policy

unemployment and inflationary finance dynamics at the early stages of transition the issues of economies in transition have been a central topic in recent macroeconomic modeling the attention of researchers has concentrated particularly on the speed of transition and the sequence of restructuring and privatising the state sector what seems to have been neglected so far are the monetary and financial issues and the interaction of inflationary finance and real variables at the early stages of transition this paper is an attempt to address these issues the theoretical set up recently proposed by aghion and blanchard 1993 is modified to capture the lack of an efficient tax system the absence of financial intermediaries and the exploitation of seigniorage copyright 1996 by royal economic society

looking ahead optimally in allocating aid summary the collier dollar approach to aid allocation among countries has been less than fully embraced by donors even those focused on poverty reduction partly because it conflicts with the approach to aid allocation implied by the millennium development goals these two approaches are shown to be special cases of a more general model of aid allocation in which donors care about future as well as current poverty this model is illustratively applied to data for developing regions adding a poverty decline adjustment to the allocation formulae used by donors could resolve the conflict between the two approaches

did high debts distort loan and grant allocation to ida countries summary we examine the allocation of net loans net transfers and grants to ida countries over the period 1982 2008 focusing on the role of debt and debt sustainability in the decisions of multilateral and bilateral donors we find no evidence of defensive lending but strong evidence of defensive granting a significant negative reaction of net loans to the debt ratio indeed characterizes the decisions of both multilateral and bilateral creditors the impact of lower loans on the budget of debtor countries is however accommodated through higher grants in addition to debt relief these findings are consistent with a substitution of grants for loans and with the new approach to debt sustainability but question the efficiency and selectivity of foreign aid

structural shifts in aid dependency and fiscal policy in developing countries abstractforeign aid is a sizable source of government financing for several developing countries and its allocation matters for the conduct of fiscal policy this article revisits the fiscal effects of shifts in aid dependency in 59 developing countries from 1960 to 2010 it identifies structural shifts in aid dependency and uses treatment effect methods to assess the fiscal effects of aid it finds that shifts in aid dependency are frequent and have significant fiscal effects in developing countries in addition to the traditional evidences of tax and investment displacement and aid illusion we show that upward shifts and downward shifts in aid dependency have asymmetric effects on fiscal accounts in developing countries large aid inflows undermine tax capacity and public investment while large reductions in aid inflows tend to keep recipients fiscal behaviour intact moreover the tax displacement effect tends to be temporary while the impacts on expenditure items tend to last finally we find tha

migration and foreign aid when it comes to linkages between migration and the global allocation of foreign development assistance the size of the immigrant population from a recipient country residing in a donor country is an important determinant of dyadic aid commitments two complementary hypotheses probe this relationship first donors use foreign aid to achieve their broader immigration goals targeting migrant sending areas to increase development and decrease the demand for entry into the donor country second migrants already residing in the donor country mobilize to lobby for additional aid for their homeland empirical tests on a large sample of country pairs made up of twenty two donors and more than 150 recipients over the period 1993 to 2008 show robust support for these hypotheses

can process conditionality enhance aid effectiveness the role of bureaucratic interest and public pressure can process conditionality enhance poverty reduction in developing countries we address this question in a political economic framework with political distortions on the recipient and the donor side process conditionality is a useful tool only if the international financial institutions hold all necessary information to assess the political situation in recipient countries and to select the true representatives of the poor into a participatory process if they do not hold this information or if bureaucratic interests reduce their incentive to acquire this information process conditionality loses its effectiveness

choosing to target what types of countries get different types of world bank projects well governed countries are more likely to make use of foreign aid for the purposes of economic development and poverty alleviation therefore if aid agencies are providing funds for the sake of development these countries should receive more aid and categorically different types of aid as compared with poorly governed countries in poorly governed countries aid should be given in forms that allow for less discretion using an original data set of all world bank projects from 1996 to 2002 the author distinguishes programmatic projects from investment projects and national from subnational investment projects if the world bank allows more discretion in well governed countries then it will choose to provide programmatic and national aid for these recipients the author presents evidence that the world bank provides a larger proportion of national investment lending in better governed countries with regard to programmatic lending he finds mixed evidence among counties eligible for international development association ida aid good governance surprisingly is associated with a lower proportion of programmatic aid whereas for international bank for reconstruction and development ibrd borrowers good governance is associated with a higher proportion the author subjects these results to a number of robustness checks although he confirms the existing result in the literature that the world bank provides larger overall amounts of aid to better governed countries his examination of the disaggregated data leads to questioning whether both lending wings of the world bank are designing aid programs in the most prodevelopment way possible

policy selectivity forgone debt and donor behavior in africa authors assess the dynamics behind the high net resource transfers by donors and creditors to sub saharan african countries analyzing the determinants of overall net transfers for a panel of 37 recipient countries in 1978 98 authors find that country policies mattered little donors especially bilateral donors actually made greater transfers to countries with high debt largely owed to multilateral creditors when policies were bad authors conclude that comprehensive debt relief has the potential though not the certainty to restore selectivity in support of good policies that would make development assistance more effective going forward and increase public support in donor countries

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

the income lever and the allocation of aid the paper develops a concept and a measure of the monetary capacity of a country to reduce its own poverty and shows how these tools can be used to guide budget allocations or the allocation of aid the authors call this concept the income lever making use of tax and distributive theory the paper shows how different redistributive criteria correspond to the different normative criteria of the income lever it then constructs various income lever indexes based on these criteria and uses such indexes to rank countries according to their own capacity to reduce poverty as shown in the empirical application this methodology can provide an equitable tool to rank countries or regions when it comes to budget or aid allocations whether it is the allocation of social funds within the european union north north transfers or the allocation of aid from rich to poor countries north south transfers the findings indicate that the allocation of social funds in the european union follows closely the rank that results from the income lever indexes proposed while the allocation of aid to sub saharan african countries does not

the price effects of cash versus in kind transfers this article examines the effect of cash versus in kind transfers on local prices both types of transfers increase the demand for normal goods in kind transfers also increase supply in recipient communities which could lead to lower prices than under cash transfers we test and confirm this prediction using a programme in mexico that randomly assigned villages to receive boxes of food trucked into the village equivalently valued cash transfers or no transfers we find that prices are significantly lower under in kind transfers compared to cash transfers relative to the control group in kind transfers cause a 4 fall in prices while cash transfers cause a positive but negligible increase in prices in the more economically developed villages in the sample households purchasing power is only modestly affected by these price effects in the less developed villages the price effects are much larger in magnitude which we show is due to these villages being less tied to the outside economy and having less competition among local suppliers

estimating aid allocation criteria with panel data in 1990 the net amount of economic aid or official development assistance to all recipients from all multilateral and bilateral sources was about 62 billion an amount that exceeded the gdps of greece and portugal despite the size of this yearly transfer there has been no rigors modeling and estimation of the criteria by which it occurs as a result there is little agreement about the extent to which oda is allocated according to the needs of the recipient countries the purpose of this paper is to develop a rigorous theoretical model of oda allocation that can be used to provide consistent estimates of the importance of recipient needs copyright 1994 by royal economic society

unravelling financial market linkages during crises an empirical model of multiple asset classes across countries is formulated in a latent factor framework a special feature of the model is that financial market linkages during periods of financial crises including spillover and contagion effects are formally specified the model also captures a range of common factors including global shocks country and market shocks and idiosyncratic shocks the framework is applied to modelling linkages between currency and equity markets during the east asian financial crisis of 1997 98 the results provide strong evidence that cross market links are important spillovers have a relatively larger effect on volatility than contagion but both are statistically significant

competition for aid and trade policy this paper considers the optimal allocation of a given amount of foreign aid between two recipient countries it is shown that given consumer preferences a country following a more restrictive trade policy would receive a smaller share of the aid if the donor country maximises its own welfare in allocating aid if on the other hand the donor country allocates aid in order to maximize the sum of the welfare of the two recipient countries the result is just the opposite finally we analyze the situation where the recipient countries compete with each other for the given amount of aid it is shown that this competition tends to lower the level of optimal tariffs in the recipient countries

cash vs in kind transfers indian data meets theory this paper uses qualitative and quantitative data from a survey of over 1200 rural households in nine indian states to explore the arguments for and against cash and in kind in this case food transfers when respondents were asked to think about argue and choose between the two two thirds of the respondents expressed a preference for food rather than the choice made by respondents the focus here is on understanding the reasons behind their choice as explained by beneficiaries themselves two main findings emerge first some arguments corroborate existing theory e g paternalism fungibility but others e g self control transition costs are not incorporated in existing theory on the advantages of in kind transfers second context is important most importantly respondents reported preferences were associated with the benefits they were experiencing under the status quo where the pds performed better at distributing food respondents were more likely to report preferring food to cash transfers the contention of traditional theory that cash is superior fails to factor in contextual concerns

measurement of market integration and arbitrage we develop a measurement theory of market integration based on two notions of integrated markets first two markets cannot be perfectly integrated in any sense if one can construct two portfolios one from each market that have identical payoffs but different prices in that case the law of one price is violated across the markets second they cannot be integrated in a stronger sense if there are cross market arbitrage opportunities two measures of market integration are developed respectively reflecting these notions the smaller the measures the more closely integrated in the respective senses the markets among other things they are interpreted as measuring pricing discrepancy between markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

exploring recipient preferences and allocation mechanisms in the distribution of development aid this study uses incentive compatible techniques to obtain valuations of 14 common poverty reduction interventions from probable aid recipients recipients valuations for these interventions are

why conditional aid does not work and what can be done about it abstract this paper studies a simple reform that introduces ex post incentives for the donor to reward good policies contrary to existing practices instead of committing aid to each recipient ex ante and making aid conditional on reform the donor centralizes the disbursement decision by committing aid to a group of countries the actual amount disbursed to each individual country would depend on its relative performance this explicit linkage of the allocation and disbursement decisions has two important advantages as compared to present practices first it raises the opportunity cost of disbursing aid ex post thereby giving the donor stronger incentives to reward good policies second competition among recipients allows the donor to make inferences about common shocks which otherwise conceal the recipient s choice of action this enables the donor to give aid more efficiently

cash transfers and high food prices explaining outcomes on ethiopia s productive safety net programme an ongoing and highly politicised debate concerns the relative efficacy of cash transfers versus food aid this paper aims to shed light on this debate drawing on new empirical evidence from ethiopia s productive safety net programme psnp our data derive from a two wave panel survey conducted in 2006 and 2008 ethiopia has experienced unprecedented rates of inflation since 2007 which have reduced the real purchasing power of psnp cash payments our regression findings confirm that food transfers or cash plus food packages are superior to cash transfers alone they enable higher levels of income growth livestock accumulation and self reported food security these results raise questions of fundamental importance to global humanitarian response and social protection policy we draw out some implications for the design of social transfer programmes and describe some steps that could be taken to enable predictable transfers to meet predictable needs

the public and private provision of pure public goods and the distortionary effects of income taxation a political economy approach a pure public good is provided by the government and the voluntary contri butions of two types of households the government finances its contribution by means of income taxation the latter has distortionary effects a third type of household never makes contributions we analyse the effects of changes in the income tax rate on a the pro vision of the public good b the private contributions of the households and c changes in the distribution of income and welfare between contributing and non contributing households we derive a simple and testable condition under which the lowering of the income tax entails a pareto improvement jel classification h23 h24 h41 la fourniture privie et publique de biens publics purs et les effets de distorsion de l imp6t sur les revenus une approche en terme d conomie politique un bien public pur est fourni par le gouvernement et par des contributions volontaires de deux types de m6nages le gouvernement finance sa contribution par un imp6t sur le revenu qui a des effets de distorsion un troisi6me type de menages ne contribue d aucune maniere on examine les effets de changements dans le taux d imposition du revenu sur a la fourniture du bien public b les contributions privees des menages c les changements dans la distribution du revenu et du bien etre entre les menages qui contribuent et ceux qui ne contribuent pas on derive une condition simple et verifiable qui assure qu une reduction d imp6t sur le revenu va engendrer une amelioration au sens de pareto

can poor countries lobby for more us bilateral aid summary this article explores if countries can lobby the us government for the allocation of us bilateral foreign aid we consider an informational lobby model where lobbying has two effects first a direct effect by informing us policymakers about their countries needs second an indirect effect on policymakers by informing them about common interests in economic or geopolitical terms the lobbyist thus influences the decisions about the allocation of aid resources we estimate the effect of the recipient country s lobbying agents in obtaining foreign aid the econometric results show that lobbying positively affects the amount of bilateral aid received

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

information transmission and ownership consolidation in aid programs we investigate the degree of leeway donors of foreign aid should grant to recipient governments when their preferences over how to implement the aid are different and both the donor and recipient possess some private information about the most effective policies intuitively our model shows that donors should stay in control of how their aid is spent when their own private information is more important than the private information of the recipient less obviously an increase in the difference of preferences between donors and recipients can increase rather than decrease the leeway that donors should grant the recipients as the recipients information gains in importance relative to those of the donors and recipients become less likely to communicate truthfully we test the model using dyadic data for 28 bilateral aid donors and 112 recipients over the 1995 2010 period our proxy for centralized aid is project aid while budget aid leaves more leeway to the recipient and thus proxies for decentralized aid in line with the model misaligned interests and informational asymmetries indeed influence the shares of aid given as budget and project aid jel c23 d82 f33 o1

brokered livelihoods debt labour migration and development in tribal western india seasonal labour migration is an increasingly important aspect of rural livelihoods in tribal areas of western india such migration can no longer be viewed merely as an adjunct to an essentially agrarian way of life but has to be seen as integral to the coping survival and livelihood strategies of tribal farming families rural to urban migration is often viewed as a consequence of environmental crisis in which migrants as ecological refugees gadgil and guha 1995 are forcibly displaced by processes of deforestation soil erosion water scarcity land fragmentation declining agricultural productivity and population increase while increasing pressure on a fragile resource base has indeed contributed to widespread failure to meet subsistence needs among tribal households the research discussed in this study shows that the forces leading to migration are as much to do with the social relations of dependency and indebtedness which subsistence failure entails as with ecological decline the problem is

global samaritans donor election cycles and the allocation of humanitarian aid abstract this paper finds a large causal donor election cycle effect in humanitarian aid allocations on average humanitarian aid increases by 19 in the year before elections our identification strategy consists of focusing on donors with fixed election dates making elections clearly exogenous furthermore we find large interaction effects with natural and human disasters this evidence is consistent with our theory that incumbent governments responding to humanitarian disasters can increase voter support for their party and insure against the political fall out of not being seen as representatives of a country with global interests and influence however it is important to stress that despite our findings human and natural disasters explain a substantially larger share of the overall variation in humanitarian aid observed in the data

public information and performance the role of spatial dependence in the worldwide governance indicators among african countries summary the worldwide governance indicators wgi provide transparent and comparable country statistics for different dimensions of governance linked to under development yet does the public availability of governance data actually enhance performance if investors donor agencies and citizens are made aware of relative governance performance competition for inward investment such as fdi and oda and domestic legitimacy become plausible mechanisms for diffusion of good governance we test whether such mechanisms operate using the wgi for africa and find evidence for spatial diffusion of democracy rule of law and corruption control there is no evidence for diffusion of regulatory quality and government effectiveness

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

job reallocation in two cases of massive adjustment in eastern europe summary this paper uses worker level data to characterize economy wide job creation and job destruction during periods of massive structural adjustment we contrast the gradualist czech and the rapid estonian approach to the destruction of the communist economy and assess their experience in light of selected theories of reallocation with frictions we find that gradual job destruction combined with job creation support allows extensive reallocation to concur with low unemployment drastic job destruction on the other hand need not slow down job creation as long as unemployment benefits are kept very low

aid infrastructure and fdi assessing the transmission channel with a new index of infrastructure official development assistance oda and foreign direct investment fdi are widely perceived to be alternative means of supplementing domestic savings and promoting economic development in low and middle income countries however possible complementarities of aid and fdi have received limited attention so far it remains open to debate whether aid could render recipient countries more attractive to fdi by removing specific bottlenecks that prevent higher fdi inflows in particular we raise the hypothesis that aid specifically targeted at economic infrastructure helps developing countries attract higher fdi inflows through improving their endowment with infrastructure in transportation communication energy and finance by performing 3sls estimations we explicitly account for dependencies between three structural equations on the allocation of sector specific aid the determinants of infrastructure and the determinants of fdi we find strong and robust evidence that aid in infrastructure is effective in improving the recipient countries endowment with infrastructure in sharp contrast other aid is not effective in improving infrastructure infrastructure consistently proves to be an important determinant of developing countries attractiveness to fdi consequently only targeted aid promotes fdi indirectly through the infrastructure channel in addition aid in infrastructure has direct effects on fdi it appears that foreign investors anticipate longer term effects of aid on the country s endowment with infrastructure and expect aid financed infrastructure to serve them particularly well

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

on the provision of official and private foreign aid abstract the provision of official relative to private foreign aid varies considerably between donor countries we explain the variations in terms of country size household composition income distribution and the government s ability to commit to aid and derive inter alia the results 1 official aid crowds out private aid 2 total aid and official aid collected from each household are lower in more populous countries 3 total aid is lower if i the distribution of income favors the more altruistic households and ii the government can credibly commit to a certain level of aid evidences suggest that the theoretical results can explain stylized facts

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

the anarchy of numbers aid development and cross country empirics the recent literature contains many stories of how foreign aid affects economic growth aid raises growth in countries with good policies or with difficult economic environments or outside the tropics or on average but with diminishing returns the diversity of the results suggests that many are fragile seven important aid growth papers are tested for robustness using 14 minimally arbitrary tests deriving mainly from differences among the studies themselves this approach investigates the importance of potentially arbitrary specification choices while minimizing the arbitrariness in testing choices all of the results appear fragile especially to sample expansion

why donors of foreign aid do not coordinate the role of competition for export markets and political support development assistance has been criticised for a lack of coordination between aid donors this paper argues that competition for export markets and political support prevents donor countries from coordinating their aid activities between one another to test these hypotheses we perform logit and fractional logit estimations for a large sample of recipient countries and aid activities since the early 1970s our empirical results reveal that export competition between donors is a major impediment to aid coordination although less conclusive we also find some evidence that donors competition over political support prevents them from coordinating aid activities more closely

urban bias in price risk the geography of food price distributions in low income economies the geography of agricultural marketing has important implications for the stochastic distribution of agricultural commodity prices this article proposes that objective food price risk differs between rural and urban areas of infrastructure poor economies characterised by spatially concentrated patterns of foodgrains storage this difference implies an urban bias having adverse welfare effects for peasants who seasonally switch between net food seller and net food buyer positions empirical analysis of rice price data from madagascar suggests that price variability and skewness indeed differ between rural and urban areas in ways that adversely influence the relative welfare of rural peasants

aid and migration substitutes or complements this paper investigates the impact of aid on migration and identifies two channels bilateral aid influences migration by enhancing the information about labor market conditions in the destination country attraction effect total aid correlates with migration through increasing expenditure financing and hence wages in countries of origin push effect we compute the critical level of income above which emigration and income are substitutes which is about us 7 300 per capita in ppp 2000 prices for example brazil or russia we argue that for countries below this threshold there is a trade off between aid and migration policies a tightening of the migration policy is equivalent to a reduction of the level of aid by about 24 a comparison of skilled and unskilled migrations shows that the former are more sensitive to the attraction effect than the latter

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

foreign aid responses to political liberalization this paper analyzes the impact of political liberalization on receipt of foreign aid it distinguishes different types of donors facing different constraints in rewarding democratization with foreign aid notably bilateral donors the world bank and the european commission based on a sample of 174 recipient countries from 1995 to 2009 the paper jointly examines short term dynamics and long term effects of sustained liberalization except for the world bank donors react to regime change bilateral donors are found to reward political liberalization in the second year after transition

parastatals as instruments of government policy the food corporation of india abstract reforms of agri food policies typically occur without taking account of the structure of markets in which the policy reforms occur it is usually assumed that markets are perfectly competitive an assumption that is violated in the presence of parastatals they often play multiple roles in meeting the objectives of government policy through their activities in procurement and distribution of food commodities after presenting a general framework we modify it to model the specifics of the food corporation of india and the functions that it fulfils in providing price support to farmers and food security to poor households keeping the government s policy objectives unchanged we then alter the functions that the fci fulfils to be consistent with recommendations from the high level committee that recently investigated the role of the fci these recommendations included the substitution of negotiable warehouse receipts for the minimum support price scheme for farmers and the substitution of cash transfers in place of the targeted public distribution system for poor households we find that this re instrumentation of the means of achieving policy objectives together with a consequent greater role for the private sector leads to substantial welfare gains as well as to greater food security when measured as food availability

aid trade and migration how do bilateral flows interact this paper takes as its point of departure the european commission s position set out in 2005 which laid clear emphasis on aid and trade as tools for controlling immigration we attempt to subject this position to empirical investigation we exploit data on bilateral aid trade and migration flows between developed and developing countries for the period 2000 10 adopting an instrumental variable approach to address the endogeneity issue due to potential simultaneity bias our results establish that increasing aid and trade with developing countries is likely to fail to contain immigration at least in the short run the pattern of results is consistent with the hypothesis that promoting development in migrant sending countries or cooperating with such countries to control migration outflows is not sufficient to lessen immigration increasing visa restrictions and controls at borders is generally controversial still the results imply that policymakers cannot attain their short term immigration goals with the so called smart solutions of aid and trade

the impact of foreign aid on migration revisited abstract while policymakers hope to stem migration flows by giving foreign aid existing empirical evidence points in the opposite direction by loosening budget constraints aid tends to encourage people to emigrate in this paper we revisit the aid migration link using a substantially extended and adjusted econometric approach based on a gravity model of international migration in contrast to the previous literature we obtain evidence of a negative relationship between the total aid a country receives and emigration rates this even holds for the poorer part of recipient countries which suggests that the budgetary constraint channel does not play a significant role in shaping migration decisions the most plausible explanation for these contrasting results is that unlike in previous studies we use migrant flows rather than migrant stocks as the dependent variable in substantive terms the limited importance of the budgetary constraint channel might reflect that positive welfare effects of foreign aid tend to manifest themselves in improved public services for the poor rather than higher incomes which is in line with the reorientation of foreign aid towards social sectors under the millennium development goals

aid and growth what does the cross country evidence really show abstract we examine the effects of aid on growth in cross sectional and panel data after correcting for the possible bias that poorer or stronger growth may draw aid contributions to recipient co

unconditional aid and green growth abstract environmentally motivated aid can help developing countries to achieve economic growth while mitigating the impact on emission levels we argue that the usual practice of giving aid conditionally is not effective and we therefore study aid that is given unconditionally our framework is a differential open loop stackelberg game between a fully developed leader country and a developing follower country the leader chooses the amount of mitigation aid given to the follower which the follower either consumes or invests in either costly non polluting capital or cheap high emission capital we show that giving aid conditionally is only rarely effective and if so is based on a forced intertemporal savings effect in all other cases it is ineffective at best and counterproductive at worst moreover we find that the leader gives unconditional mitigation aid only when sufficiently rich or when caring sufficiently about environmental quality if unconditional aid is given in steady state it decreases the steady state level of high emission capital and capital investments in the recipient country as well as the global pollution stock but it has no effect on the levels of non polluting capital and non polluting investments transitional aid accelerates the economic growth of the follower moreover we find that the increase in growth takes place in the non polluting sector

financial integration a new methodology and an illustration this paper develops a simple methodology to test for asset integration and applies it within and between american stock markets our technique relies on estimating and comparing expected risk free rates across assets expected risk free rates are allowed to vary freely over time constrained only by the fact that they must be equal across risk adjusted assets in well integrated markets assets are allowed to have standard risk characteristics and are constrained by the fama and french factor model of covariances over short time periods we find that internal integration in the s p 500 market is never rejected and is not generally rejected in the nasdaq integration between the nasdaq and the s p however is always rejected dramatically jel g14