Rent seeking and aid effectiveness |
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Authors: | Roland Hodler |
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Institution: | (1) Department of Economics, University of Bern, Schanzeneckstrasse 1, CH-3001 Bern, Switzerland |
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Abstract: | We introduce foreign aid and a rent seeking contest for public funds into the Barro (JPE 1990) growth model. We find that aid effectiveness depends on fiscal policies, the level of aid inflows and the quality of
institutions that restrict appropriation of public funds by rent seeking agents. These results can be shown to be consistent
with the best established findings in the empirical literature on aid effectiveness. Rent seeking may thus indeed be a major
determinant of aid effectiveness. We further discuss how aid effectiveness depends on the way foreign aid is disbursed and
on the determinants of institutional quality.
JEL Classification F35 · D72 · D9 · H2 |
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Keywords: | Foreign aid Growth Rent seeking |
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