Decentralization and Foreign Aid Effectiveness: Do Aid Modality and Federal Design Matter in Poverty Alleviation?

Christian Lessmann and Gunther Markwardt

No 3035, CESifo Working Paper Series from CESifo

Abstract: This paper empirically studies the impact of decentralization on foreign aid effectiveness. For this purpose, we examine a commonly used empirical growth model, considering aid modality as well as different measures of political and fiscal decentralization. Our panel estimations reveal that fiscal decentralization negatively impacts aid effectiveness, while measures of political decentralization have no significant effect or even a positive one. This result is robust for grants and overall ODA, while the growth impact of other aid types is not generally conditional on decentralization. We therefore conclude that donor countries should carefully consider how both anti-poverty instruments - foreign assistance and decentralization - work together.

Keywords: foreign aid; growth; decentralization (search for similar items in EconPapers)
JEL-codes: H70 O10 O20 O40 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3035

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