Can Foreign Aid Motivate Institutional Reform? An Evaluation of the HIPC Initiative

Andrew Young, MinhTam Schlosky

Research output: Contribution to journalArticle

Abstract

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; also 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 recipient reforms. We present evidence that the HIPC Initiative’s track record has been lackluster. Based on the Economic Freedom of the World (EFW) index and the Freedom House political rights (PR) index, about 1/3 of HIPC participants experienced decreases in economic institutional quality; similarly for political institutional quality. Based on regressions of EFW and PR changes on HIPC Initiative aid disbursements, we find no evidence that the Initiative affects meaningful reforms. The best shot b
Original languageEnglish
Pages (from-to)242-258
JournalJournal of Entrepreneurship and Public Policy
StatePublished - 2017

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