Foreign Aid and Domestic Politics Implications for Aid Selectivity

The links between foreign aid and policies in developing countries have been at the forefront of the policy debate for decades. An emerging consensus touts aid selectivity as the solution to the failures of conditionality. In recent years, many recipients have implemented political reforms resulting in more democratic regimes. I show that donor influence depends on the aid budget being large enough relative to the recipient. I also demonstrate that if aid influences policies, the political equilibrium in democratic recipient countries is likely to change to the disadvantage of the political alternative favoured by the donor. This implies that aid selectivity should be applied cautiously.

Marginalisation in the Context of Globalisation: Why Is Africa so Poor?

Africa is the poorest region the world, and appears to be slipping further behind. This essay explores and systematises the literature that deals with why this is so. Four major lessons are suggested. The first is that the history and geography of Africa constitute impediments to economic development; the second is that in many African states growth-retarding policies have been pursued; and the third that there are intimate links between the region’s structural characteristics and its policy regimes. These three conclusions hint at an African poverty trap. The fourth lesson is that it is up to the Africans themselves to prove this proposition wrong.

Certified or Branded? A Game-Theoretic Analysis of the IMF's Policy Support

While often considered a purely ?nancial institution, the IMF has throughout its history performed non-?nancial services for its member- ship. The latest such example is the Policy Support Instrument (PSI), a certi?cation mechanism established in 2005 for which only poor members are eligible. Based on a formal game-theoretic model, I argue that it is unlikely that the PSI will serve well its intended goal of facilitating capital market access for members requesting the service. Their low income, the lack of signi?cant consequences for markets, the IMF?s traditional reluctance to criticise members, as well as the need to promote the use of the new arrangement indicate that the Fund could emphasise participants? welfare over the interests of private lenders. The continued importance of foreign aid in eligible countries also puts the IMF in the role of gatekeeping such ?ows, which might con?ict with sending clear signals to commercial actors. All these reasons imply that in many cases its seal of approval will be of little use to third-parties, despite the high standards to which PSI-countries are supposed to adhere. The best argument in favour of the PSI being a useful addition to the Fund?s tool kit for low-income members is the fact that several countries have already signed a second one.IMF; signalling; international; lending; foreign ai

Utviklingspolitikken: En revolusjon er en illusjon?

Bærekraftsmålene har blåst nytt liv i debatten om hvorvidt globale fellesgoder kan og bør finansieres med bistand. I denne replikken til Nikolai Hegertuns essay En stille revolusjon av utviklingspolitikken, argumenterer jeg for at det er liten grunn til å være strengt normativ i dette spørsmålet, blant annet fordi den statistiske definisjonen av bistand ikke utelukker dette; det er presedens for en viss bruk av bistand for slike formål; bistandsvolum uansett ikke er et fullstendig mål på givernes innsats og sier lite om kvaliteten på den; og fordi en rekke nasjonale og regionale fellesgoder – som uten tvil kan finansieres med bistand – er nødvendige for at globale fellesgoder skal kunne produseres eller konsumeres av innbyggere i fattige land. Vi vet heller ikke med sikkerhet at tradisjonell bistand gir større velferdsøkninger i fattige land enn finansiering av globale fellesgoder. Det er mulig å se for seg både at de globale utfordringene sluker bistanden og at de gir støtet til internasjonalt samarbeid i et omfang vi ikke har sett før. Gitt de underliggende drivkreftene – en kombinasjon av altruisme og egeninteresser – er det mer sannsynlig med gradvise endringer i utviklingspolitikken enn en revolusjon.publishedVersio

Assessing the Economic Gains of Free Market Access for the Least Developed Countries in the QUAD

The Least Developed Countries (LDCs) are the poorest countries in the world. Their share of world trade has declined from 0.8% in 1980 to less than 0.5% today. The purpose of this study is to evaluate the impact on the LDCs of getting duty- and quota-free access to their main export markets. Our conclusion is that the aggregate benefits are likely to be modest. The main reasons are (1) that most LDCs presently enjoy quite liberal market access in important export markets, and (2) that the ability of LDCs to take advantage of trade preferences is limited, due to supply constraints and restrictive rules of origin.

Irreversible investments, dynamic inconsistency and policy convergence

We study a model where two parties, one from the left and one from the right, compete for position. The election is to be held in the near future and the outcome is uncertain. Prior to the election, the members of both parties nominate their prime ministerial candidates. Investors care about the outcome since they may invest in irreversible domestic production capital. We find that there is political convergence in the nomination process. In some circumstances, it is only the median voter of the left-wing party that elects a more moderate candidate. In other instances, the members of both parties nominate more "conservative" candidates, but there is still convergence. We also show that a higher probability of the left winning the election increases the degree of convergence, while a more globalised economy (greater capital mobility) reduces it.Policy Objectives; Policy Designs and Consistency; Policy Coordination; International Investment; Long-Term Capital Movements; Personal Income and Other Nonbusiness Taxes and Subsidies; Political Economy.

Irreversible Investments, Dynamic Inconsistency and Policy Convergence

We study a model where two parties, one from the left and one from the right, compete for position. The election is to be held in the near future and the outcome is uncertain. Prior to the election, the members of both parties nominate their prime ministerial candidates. Investors care about the outcome since they may invest in irreversible domestic production capital. We find that there is political convergence in the nomination process. In some circumstances, it is only the median voter of the left-wing party that elects a more moderate candidate. In other instances, the members of both parties nominate more “conservative” candidates, but there is still convergence. We also show that a higher probability of the left winning the election increases the degree of convergence, while a more globalised economy (greater capital mobility) reduces it.capital mobility, dynamic inconsistency, political competition, policy convergence

Help not needed? Optimal host country regulation of expatriate NGO workers

Under embargo until: 03.10.2019Motivated by interventions in poor countries to increase the use of local labor in foreign nongovernmental organizations (NGOs), we address the behavior of these organizations under host government regulation. We extend existing NGO models by distinguishing between local workers and expatriates. The model covers both NGO monopoly and competition in the market for donations. Assuming that NGOs maximize output, we show that regulations in the form of a quota on the number of expatriates or a work permit fee for foreigners reduces NGO output, but increases employment of locals. The optimal quota is more likely to bind in the market structure generating the highest total fundraising surplus. An optimal work permit fee is equivalent to an optimal quota in both the monopoly and duopoly cases. For both instruments, the optimal tightness of regulation is decreasing in the weight the government attaches to the public good relative to domestic incomes and in the importance of NGO output to the supply of the public good. Aggregate NGO output and the level of the public good produced could be higher with a monopoly NGO.acceptedVersio

Basic analytics of multilateral lending and surveillance

I analyse whether multilateral lending may be justified in a world of global capital markets if multilaterals have an informational advantage over lenders in the market for sovereign debt. I show that the adverse selection problem in this market may be solved through cheap-talk provided the multilateral agency does not care too much about borrower country welfare. However, when lending is unconstrained the private information of the multilateral will be revealed whatever the relative weighting of welfare and lenders’ profits. In contrast, restricted multilateral lending may worsen the problem compared to a situation where the agency plays a purely informational role

Samaritan agents? : on the delegation of aid policy

Should an aid donor delegate the responsibility for allocating its budget to an agent less averse to inequality than itself in order to alleviate the Samaritan’s Dilemma it is facing? Despite the intuitive appeal of this proposition, I show that the optimal type of agent depends on whether or not committing to a greater share for recipients where the productivity of aid is low is efficiency-enhancing. This is the case for donors not too concerned with redistribution. They would therefore benefit from delegating the determination of the discretionary allocation rule to agents more sensitive to distributional issues than themselves