TY - JOUR
T1 - Can foreign aid motivate institutional reform? An evaluation of the HIPC Initiative
AU - Schlosky, Minh Tam
AU - Young, Andrew
N1 - Publisher Copyright:
© 2017, © Emerald Publishing Limited.
PY - 2017
Y1 - 2017
N2 - Purpose: A number of political economy concerns are associated with the provision of foreign aid to developing economies. These concerns suggest that foreign aid is likely to have harmful effects on a recipient’s institutional quality, and that attempts to give aid conditional on policy and institutional reforms are unlikely to succeed. Established in 1996, the Heavily Indebted Poor Country (HIPC) Initiative is a comprehensive, structured attempt to provide multilateral foreign aid conditional on reforms in recipient countries. The purpose of this paper is to evaluate its effectiveness at affecting institutional reform in participating countries. Design/methodology/approach: The authors document how participating countries fared in terms of the quality of their policies and institutions. The authors employ the Fraser Institute’s Economic Freedom of the World index as a measure of economic institutions, and the Freedom House political rights (PR) and civil liberties indices as measures of PR and protections. Based on these measures, the authors report unconditional statistics (e.g. average changes) and also regressions of changes in the measures on HIPC Initiative aid allocations and other controls. Findings: The authors find that most participating countries experienced either meager increases or outright decreases in institutional quality. The regression results provide no evidence that the Initiative affects meaningful reforms. Originality/value: The potential for foreign aid to have deleterious effects on the institutional quality of recipient countries has been of increasing concern to students of economic development. Such effects can have important implications for entrepreneurial activity in these countries. The HIPC Initiative is specifically designed to acknowledge and, indeed, overcome these concerns, leading to actual increases in institutional quality of recipient countries. To the authors’ knowledge, this work is the first to assess whether the promise of the HIPC Initiative is being fulfilled.
AB - Purpose: A number of political economy concerns are associated with the provision of foreign aid to developing economies. These concerns suggest that foreign aid is likely to have harmful effects on a recipient’s institutional quality, and that attempts to give aid conditional on policy and institutional reforms are unlikely to succeed. Established in 1996, the Heavily Indebted Poor Country (HIPC) Initiative is a comprehensive, structured attempt to provide multilateral foreign aid conditional on reforms in recipient countries. The purpose of this paper is to evaluate its effectiveness at affecting institutional reform in participating countries. Design/methodology/approach: The authors document how participating countries fared in terms of the quality of their policies and institutions. The authors employ the Fraser Institute’s Economic Freedom of the World index as a measure of economic institutions, and the Freedom House political rights (PR) and civil liberties indices as measures of PR and protections. Based on these measures, the authors report unconditional statistics (e.g. average changes) and also regressions of changes in the measures on HIPC Initiative aid allocations and other controls. Findings: The authors find that most participating countries experienced either meager increases or outright decreases in institutional quality. The regression results provide no evidence that the Initiative affects meaningful reforms. Originality/value: The potential for foreign aid to have deleterious effects on the institutional quality of recipient countries has been of increasing concern to students of economic development. Such effects can have important implications for entrepreneurial activity in these countries. The HIPC Initiative is specifically designed to acknowledge and, indeed, overcome these concerns, leading to actual increases in institutional quality of recipient countries. To the authors’ knowledge, this work is the first to assess whether the promise of the HIPC Initiative is being fulfilled.
KW - Conditionality
KW - Debt relief
KW - Economic freedom
KW - Foreign aid
KW - HIPC Initiative
KW - Institutional quality
UR - http://www.scopus.com/inward/record.url?scp=85026916994&partnerID=8YFLogxK
U2 - 10.1108/JEPP-03-2017-0007
DO - 10.1108/JEPP-03-2017-0007
M3 - Article
AN - SCOPUS:85026916994
VL - 6
SP - 242
EP - 258
JO - Journal of Entrepreneurship and Public Policy
JF - Journal of Entrepreneurship and Public Policy
SN - 2045-2101
IS - 2
ER -