The rise and fall of budget support: Ownership, bargaining and donor commitment problems in foreign aid

Motivation: Budget support is the form of aid most commonly associated with recipient‐country ownership. However, a number of scholars and practitioners have criticized the approach as masking new forms of conditionality. Was budget support simply a guise for increasing donor influence in recipient countries? How can we explain the rapid shift towards budget support, as well as the rapid decline in its popularity after only a few years? Purpose: We use a bargaining framework to explain the rise and fall of budget support. Contrary to explanations that suggest that budget support was a normative decision by donors designed to increase aid effectiveness by fostering ownership, a bargaining framework emphasizes that aid policy is the result of sustained negotiations between donors and recipients. These negotiations, however, are constrained by donors' inability to deliver aid as promised. Approach: We use a Nash bargaining framework to formalize the predictions of a bargaining model. From the model, two testable predictions emerge: (1) in exchange for more credible commitments, recipient governments are willing to selectively offer donor agencies greater access to and influence over domestic policy decision-making; and (2) in exchange for such influence, donor agencies are willing to exert less pressure on recipients to be politically inclusive. We then test the implications of the model using case‐study evidence from Rwanda and Tanzania. Findings: The empirical data, based on over 80 interviews with practitioners over several periods of research in both countries, provide substantial evidence in support of the model's core assumptions and predictions. Contrary to claims that budget support increased recipient‐country ownership, interviews (identified as personal communications) suggest that, in exchange for more credible commitments, recipient governments were willing to grant donors greater access and influence. In return, donor agencies reduced demands on the recipient government regarding political inclusivity, tacitly accepting arrangements that centralized decision‐making and excluded civil society. When donor agencies could no longer provide budget support as promised, these negotiated arrangements broke down. Policy Implications: The findings challenge a common narrative that donors embraced budget support because of a normative commitment to ownership. They also demonstrate the value of a bargaining framework. To understand why particular forms of aid, like budget support, rise in popularity only to quickly fall by the wayside, we need to understand what donor agencies and recipient governments bargain over and why

Aid on Demand: African Leaders and the Geography of China's Foreign Assistance

This article investigates whether China’s foreign aid is particularly prone to political capture by political leaders of aid-receiving countries. Specifically, we examine whether more Chinese aid is allocated to the political leaders’ birth regions and regions populated by the ethnic group to which the leader belongs, controlling for indicators of need and various fixed effects. We have collected data on 117 African leaders’ birthplaces and ethnic groups and geocoded 1,650 Chinese development finance projects across 3,097 physical locations committed to Africa over the 2000-2012 period. Our econometric results show that current political leaders’ birth regions receive substantially larger financial ows from China than other regions. On the contrary, when we replicate the analysis for the World Bank, our regressions with region-fixed effects show no evidence of such favoritism. For Chinese and World Bank aid alike, we also find no evidence that African leaders direct more aid to areas populated by groups who share their ethnicity, when controlling for region-fixed effects