Micro for Development - Corruption, elite capture and foreign aid

Question 1

characteristics of high-corruption countries

Answer 1

• developing or transition countries (figure 1)
• Corruption is correlated with (tables 2-5)
  
  • GDP/capita
  • Schooling
  • Openness
  • Regulations
  • Freedom of media

Question 2

elite capture

Answer 2

• Definition elite capture: government pursues interests that are narrower than the public interest
• Hence, elite capture is a form of corruption broadly defined
• Donors are increasingly concerned about the effectiveness of aid in the context of a poor policy environment:
  
  • Increasing emphasis on aid effectiveness with end of Cold War
  • The impact of aid on economic growth depends on the quality of economic policy (Burnside and Dollar 2001). But see Roodman (2007)
  • Aid is found to have very little effect on policy choice (Burnside and Dollar 2001)

Question 3

model of foreign aid and elite capture

Answer 3

Question 4

unconditional aid

Answer 4

Question 5

conditional aid

Answer 5

Question 6

bargaining

Answer 6

Question 7

policy vs process conditionality

Answer 7

• Conditionality on policy needs to be repeated over time unless f or G change
• In principle any conditional aid (T,t,A) for given f (policy conditionality) can be achieved through unconditional aid for an alternative f * (process conditionality)
• Observations
  
  • f is less easily reversed and therefore more attractive for donor
  • recipient will require greater compensation for changes in f (taking into account future opportunity costs)
  • changes in f ease credibility problems of donors as they require only short-run credibility
  • problem is however knowledge of how, in practice, aid flows would interact with (emerging) political institutions