Working Paper: CEPR ID: DP2482
Authors: Sajal Lahiri; Pascalis Raimondos-Moller
Abstract: We develop a political-economic model of aid fungibility. A donor country gives aid to a recipient government for the benefit of a target group. However, the recipient government accepts political contributions from a lobby group not targeted by the donor and transfers a fraction of the aid to the non-target group. The size of this fraction is determined endogenously in the political equilibrium in the recipient country. We examine how the donor's behaviour affects the equilibrium, and how changes in the parameters of the model affect the total amount of aid and the proportion of it reaching the target group.
Keywords: politics; lobbying; fungibility; foreign aid
JEL Codes: F11; F35; O00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Donor Behavior (D64) | Political Equilibrium (D72) |
| Political Equilibrium (D72) | Aid Allocation (F35) |
| Donor Behavior (D64) | Aid Allocation (F35) |
| Organized Interest Group (D72) | Aid Allocation (F35) |
| Political Contributions (D64) | Aid Allocation (F35) |
| Corruption (D73) | Aid Distribution (F35) |
| Parameter Changes (Y20) | Aid Proportion (F35) |