Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      The Political Economy of Bilateral Foreign Aid
      04 Jan 2013Working Paper Summaries

      The Political Economy of Bilateral Foreign Aid

      Foreign aid has always been political, a fact long noted by diplomats, journalists, and scholars. But then, political forces are behind why aid was developed in the first place and why it continues to survive, even as much of this aid has as its goal to promote economic development or poverty reduction. From a developmental standpoint the political economy of aid allocation and receipt can interfere with its optimal distribution. Aid policymakers, who want to maximize the developmental impact of foreign assistance, have devised a number of ways to attempt to subvert the political forces at work. This paper, a chapter in a forthcoming book, explores the distortions present in aid allocation and spending, and the development community's efforts to depoliticize such allocation and spending. As it turns out, none of their solutions can shield foreign aid from the heavy hand of politics. Key concepts include:
      • At their worst, fixes to mitigate the political economy distortions of aid receipt and implementation can render impotent the national government in recipient countries, and its role in creating a healthy polity.
      • At their best, such donor fixes may better identify the needs of the recipient populations and better devise and monitor programs in their interest.
      • It is hard to determine the impact of foreign aid flows that are politically motivated yet have no plausible development component. Economic research cannot easily isolate this type of aid.
      • A variety of interventions designed to reduce the distortions of aid ends up with the potential to sideline the national government while creating a self-perpetuating, parallel, and big-spending government-by-donors.
      • It is not clear whether NGO aid disbursement is more correlated with humanitarian and developmental variables than is official foreign aid. This decentralized approach to development assistance, while having some advantages, introduces a new set of problems.
      LinkedIn
      Email

      Author Abstract

      Despite its developmental justification, aid is deeply political. This paper examines the political economy of aid allocation first from the perspective of the donor country, and then the political economy of aid receipt and implementation from the perspective of the recipient country. When helpful, it draws from studies of multilateral aid. Following those discussions, the paper explores solutions, employed by the development community, to the distortions brought about by the political economy of bilateral aid-distortions that steer aid away from achieving economic development in the recipient country. As it turns out, none of these solutions can shield foreign aid from the heavy hand of politics. Developing countries heavily influenced by foreign aid end up with a different, and novel, governing apparatus.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: September 2012
      • HBS Working Paper Number: 13-026
      • Faculty Unit(s): Business, Government and International Economy
          Trending
            • 29 Oct 2020
            • Research & Ideas

            The COVID Gender Gap: Why Fewer Women Are Dying

            • 13 Jul 2020
            • Research & Ideas

            Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk

            • 13 Jan 2021
            • Research & Ideas

            How 'Small C' Change Can Beat Large-Scale Rebuilding

            • 11 Jan 2021
            • Research & Ideas

            Is A/B Testing Effective? Evidence from 35,000 Startups

            • 25 Feb 2019
            • Research & Ideas

            How Gender Stereotypes Kill a Woman’s Self-Confidence

        Find Related Articles
        • Government and Politics

        Sign up for our weekly newsletter

        Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
        ǁ
        Campus Map
        Harvard Business School Working Knowledge
        Baker Library | Bloomberg Center
        Soldiers Field
        Boston, MA 02163
        Email: Editor-in-Chief
        →Map & Directions
        →More Contact Information
        • Make a Gift
        • Site Map
        • Jobs
        • Harvard University
        • Trademarks
        • Policies
        • Digital Accessibility
        Copyright © President & Fellows of Harvard College