Aid, Growth and Devolution

Christian Lessmann and Gunther Markwardt

World Development, 2012, vol. 40, issue 9, 1723-1749

Abstract: This paper examines whether the degree of fiscal decentralization in aid-receiving countries matters in explaining aid effectiveness. The decentralization theorem predicts that the devolution of powers should increase aid effectiveness, since local decision-makers are better informed about local needs. Thereby decentralization may also have reverse effects, e.g., through coordination problems, excessive regulation, administrative costs, and local capture. We use panel data for up to 60 countries and find that aid contributes to economic growth in centralized developing economies. Whereas it is less effective or even harmful in decentralized countries. The cases of Indonesia, the Philippines, and Uganda support our findings. Our results imply that donor countries should carefully consider how the two development instruments—foreign aid and decentralization—interact.

Keywords: foreign aid; growth; decentralization (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305750X12000939
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Aid, Growth and Devolution (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:40:y:2012:i:9:p:1723-1749

DOI: 10.1016/j.worlddev.2012.04.023

Access Statistics for this article

World Development is currently edited by O. T. Coomes

More articles in World Development from Elsevier
Bibliographic data for series maintained by Catherine Liu ().