Donor strategy under the fungibility of foreign aid

Lahiri, S. & Raimondos-Møller, Pascalis (2004) Donor strategy under the fungibility of foreign aid. Economics and Politics, 16(2), pp. 213-231.

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We develop a political–economic model of aid fungibility: a part of aid is diverted away from its intended target by lobby groups. The size of this diversion – the degree of aid fungibility – is determined endogenously by the recipient government. The donor can affect the equilibrium degree of fungibility by choosing both the size of aid and the timing of its decision. We derive a condition under which the donor's reaction to fungibility is to reduce the amount of aid. Under this condition, if the donor acts as a follower, both the donor and the target group are better off.

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ID Code: 94016
Item Type: Journal Article
Refereed: Yes
DOI: 10.1111/j.1468-0343.2004.00138.x
ISSN: 0954-1985
Copyright Owner: Copyright 2004 Wiley-Blackwell Publishing Ltd
Deposited On: 22 Mar 2016 04:38
Last Modified: 22 Mar 2016 04:39

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