Budget Support Versus Project Aid

Should donors who are interested in the effectiveness of developmental programs rely on conditional budget support or on project aid? To answer this question, we present a model in which only a subset of the developmental expenditures can be subject to conditionality. We show that budget support is preferable to project aid when donors and recipients' preferences are aligned, and when assistance is small relative to recipients' resources. Then, we test our model estimating a modified growth model for a panel of developing countries, and find evidence in support of our predictions.
Publication date: April 2003
ISBN: 9781451851182
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Economics- Macroeconomics , Economics- Macroeconomics , Public Finance , Public Finance , aid policy , asymmetric information , empirical growth models , budget support , budget surplus , capital expenditures , budget constraint , capital expenditure , Asymmetric and Private Information , Welfare and Poverty: General , Fiscal and Monetary Policy in Development , Ec

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