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

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.

Citation:

Werker, Eric D., Axel Dreher, Stephan Klasen, and James Vreeland. "The Costs of Favoritism: Is Politically-Driven Aid Less Effective?" IZA Discussion Paper, No. 4820, March 2010.