Undermining conditionality? The effect of Chinese development assistance on compliance with World Bank project agreements
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Disbursements of foreign aid are guided (in part) by the needs of the poor. Anticipating this, recipients have little incentive to improve the welfare of the poor. In principle, conditionality could partly solve the problem, but this requires a strong commitment ability by the donor. Without such a commitment technology, aid will be allocated (partly) to those in most need, and the recipient governments will exert low effort in alleviating poverty. Contrary to conventional wisdom in the aid literature, we show that tied project aid and delegation of part of the aid budget to an (international) agency with less aversion to poverty improve welfare of the poor in the recipient countries. Keyword: Aid Policy, Credibility, Policy Design
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Global flows of Official Development Assistance are large and there is a large literature devoted to testing the effectiveness of these large flows. While among the poorest and the top recipients of foreign aid, Small Island Developing States (SIDS) are usually left out in the aid effectiveness literature. This paper seeks to remedy this by testing the main conditionality models of the literature using a sample of 37 SIDS. We also specify a new model that best fit the data for these countries. The general result is that aid has a positive and significant effect on growth in a number of specifications. However, we do not find supporting evidence that aid is effective only in countries with good policies or there is a threshold above which it has diminishing returns. Instead, we find, in our preferred specification, that aid is effective in the presence of sufficiently good governmental and social institutions.
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Global flows of Official Development Assistance are large and there is a large literature devoted to testing the effectiveness of these large flows. While among the poorest and the top recipients of foreign aid, Small Island Developing States (SIDS) are usually left out in the aid effectiveness literature. This paper seeks to remedy this by testing the main conditionality models of the literature using a sample of 37 SIDS. We also specify a new model that best fit the data for these countries. The general result is that aid has a positive and significant effect on growth in a number of specifications. However, we do not find supporting evidence that aid is effective only in countries with good policies or there is a threshold above which it has diminishing returns. Instead, we find, in our preferred specification, that aid is effective in the presence of sufficiently good governmental and social institutions.
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Purpose The purpose of this paper is to examine the relationship between enforcement and compliance and to report on the results of an empirical study that assesses the impact of enforcement action by the Australian Securities and Investments Commission (ASIC) on the subsequent compliance by violators. Design/methodology/approach Following an extensive literature review, a sample of 50 similar complaints made to ASIC during the 2005/2006 financial year, were selected and grouped into two samples. The first sample, described as the enforcement sample, comprised of complaints that had been resourced for investigation by ASIC, and the second sample, described as the non‐enforcement sample, comprised of complaints that had not been resourced for investigation. An analysis was conducted to compare how many subsequent complaints had been received by ASIC in the following three years against members of the two samples. Findings The empirical evidence of the decrease in subsequent complaints against corporate violators subject to enforcement action clearly supports the argument that enforcement action does have an impact on corporate compliance of those violators. However, it has to be acknowledged that differences in rates of subsequent violation still do not guarantee that there is a cause and effect relationship between compliance and enforcement, as it is possible enforcement action may have resulted in violators becoming better at avoiding detection and complaint. Research limitations/implications The samples were limited to complaints identified in the 2005/2006 year and only taken from two of ASIC's five regulatory categories, so caution is required when interpreting and making generalisations from the results. Only three years of subsequent complaints were examined so the study was limited to the examination of relatively short‐term effects of enforcement action. Practical implications Corporate regulators such as ASIC now need to obtain and examine qualitative data from violators and potential violators to gain insights into their actions and motivations after investigation and enforcement actions. This may enable regulators to better understand the impact on violators themselves and the extent to which media reporting of enforcement action may have a demonstration effect on potential violators. Originality/value The paper provides valuable empirical evidence of the influence of enforcement on compliance, which should be of interest to corporate regulators and those interested in regulation and corporate governance.
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1. A Good Thing? PART I: THE COMPLEX WORLDS OF FOREIGN AID 2. The Origins and Early Decades of Aid-Giving 3. Aid-giving from the 1970s to the Present 4. The Growing Web of Bilateral Aid Donors 5. The Complexities of Multilateral Aid PART II: WHY IS AID GIVEN? 6. The Political and Commercial Dimensions of Aid 7. Public Support for Aid 8. Charity or Duty? The Moral Case for Aid 9. The Moral Case for Governments and Individuals to Provide Aid PART III: DOES AID REALLY WORK? 10. Assessing and Measuring the Impact of Aid 11. The Impact of Official Development Aid Projects 12. The Impact of Programme Aid, Technical Assistance and Aid for Capacity Development 13. The Impact of Aid at the Country and Cross-Country Level 14. Assesing the Impact of Aid Conditionality 15. Does Official Development Aid Really Work? A Summing Up 16. NGOs in Development and the Impact of Discrete NGO Development Interventions 17. The Wider Impact of Non-governmental and Civil Society Organizations 18. The Growth of Emergencies and the Humanitarian Response 19. The Impact of Emergency and Humanitarian Aid PART IV: TOWARDS A DIFFERENT FUTURE FOR AID 20. Why Aid Isn't Working 21. Making Aid Work Better by Implementing Agreed Reforms 22. Making Aid Work Better by Recasting Aid Relationships
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Abstract The publication of the Assessing Aid report of the World Bank in 1998 has stimulated the debate on the future of development aid and aid policies. This collection contains a number of studies that aim to contribute to this debate. In this introduction we put the discussion on the future of development aid into perspective and summarise the main findings of the other contributions in this collection. We focus on two issues: the aid effectiveness debate before and after the Assessing Aid report, and the discussion on policy conditionality and good governance. Our main conclusions are that the evidence on aid effectiveness provided in the World Bank report is less convincing than has been claimed and that the good governance criterion proposed by the World Bank for distributing aid comes down to introducing conditionality in disguise. Keywords: Development AidConditionalityAid EffectivenessWorld Bank Report
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Studies of Western development assistance conclude that aid is effective only when recipients have good governance, measured as pro-investment policies, democratic institutions, and political stability, or when recipients lack strategic importance to donors. Underlying the theoretical frameworks in these studies is a common mechanism: compliance with conditions on aid agreements, which, in turn, depends on recipient incentives to comply. With the exception of donors’ emphasis on the quality of governance in the early 2000s, donors generally overlook recipient incentives to comply with aid agreements and thus fail to capitalize on opportunities for aid effectiveness suggested by the academic studies. A paucity of data has limited direct analysis of compliance with conditions, but studies have relied on their own data collection or have leveraged data from the World Bank to assess determinants of compliance with conditions. Importantly, these studies of compliance support the findings from the aid-effectiveness literature, indicating that the initial incentives to comply with aid agreements are the driving force in agreement compliance and therefore aid effectiveness. Based on these findings, future research on compliance with conditions on aid is encouraged, beginning with study of the direct influence of compliance on economic development. In addition, future research should analyze whether certain types of aid influence compliance with Western aid agreements, including tied aid and aid from non-Western donors. The implication for policy is that donors should enthusiastically support recipients who face incentives to comply because compliance drives aid effectiveness. When recipients lack such incentives, donors should try to change the underlying incentive structure of recipients rather than adding conditions on aid.
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