A Survey of the Theoretical Economic Literature on Foreign Aid

Elisabeth Paul

Asian-Pacific Economic Literature, 2006, vol. 20, pages 1-17

Abstract: This paper surveys the theoretical economic literature on foreign aid-in particular, the aid donor-recipient relationship. Economic theory, especially new institutional economics, can be very helpful in understanding foreign aid relationships-especially the incentive problems involved-and in designing institutions to improve aid effectiveness. In particular, it helps in understanding the chain of principal-agent relations inherent in the aid delivery system and the resulting potential for agency problems. The survey shows that economic theory can improve the design of cooperation modalities by aligning the incentives of donors and recipients for poverty reduction, but that, in order to address the problems, policy analysis must take into account the constraints faced by stakeholders in the aid relationship. The aid 'contract' should thus seek to improve the agents' incentives to use aid effectively, given the circumstances of the developing country. Copyright © 2006 The Author Journal compilation © 2006 Asia Pacific School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..

Downloads: (external link)
http://www.blackwell ... &year=2006&part=null link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0818-9935

Access Statistics for this article

Asian-Pacific Economic Literature is edited by Ron Duncan

More articles in Asian-Pacific Economic Literature from 2004 Asia Pacific School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd
Series data maintained by Christopher F. Baum ().