World Bank Aid Research Articles

Paving Their Own Road? Local Chinese and World Bank Aid and Foreign Direct Investment in Africa

Abstract China’s emergence as a major donor and economic partner to sub-Saharan Africa has prompted questions if the aims and impacts of China’s efforts in the region are driven by self-serving commercial motives. While there are strong reasons to think that the foreign aid may make a location more attractive to investment, generally, by improving the infrastructural, institutional, or human capital environment and/or by serving as a signal of a location’s risk, there is also reason to suspect that Chinese aid may be “paving the way” for investment by Chinese firms. To investigate, this paper uses spatial and temporal variations in localized, geo-referenced data to find a strong overall support that local aid boosts local foreign direct investment (FDI). However, we also find some evidence that Chinese aid boosts its own FDI compared to FDI from third-party countries; but this differential effect is also visible with the Chinese FDI’s response to the World Bank aid as well as in the relationship between both aid and FDI from the USA, suggesting that the Chinese FDI may simply be following any aid and that the relationship between its aid and FDI is not exceptional among bilateral donors.

Chinese aid and corruption in African local governments

AbstractDoes foreign aid reshape citizen views on governments? How does Chinese aid relate to corruption perception in African local governments? Studying 33 African countries from 2000 to 2014 (175 590 respondents), Chinese aid heightens perceived corruption in local councillors and officials. Corruption scandals likely contribute to negative views of both China and local governance. Control variables like World Bank aid and Confucius Institutes disprove alternate theories. Heterogeneous effects demonstrate that China's aid is unwelcome among low‐skilled individuals who feel threatened by its expansion, magnifying corruption perception. This suggests that Chinese aid's unfavourable image fosters scepticism among African citizens and undermines collaborating local governments.

Chinese Aid Projects and Local Tax Attitudes: Evidence from Africa

The provision of Chinese aid to Africa is characterized by a policy of minimal conditions, whereby aid is extended to African leaders in response to their requests. This approach may afford African leaders greater discretion in expediting the implementation of Chinese aid projects. However, it also renders Chinese aid vulnerable to corruption, as leaders may exploit it to secure political favor for a specific region without the need to adjust government tax and spending policies. Such a characteristic of Chinese aid projects may ultimately shape local attitudes towards taxation and, thereby, influence state–society relations. This paper puts this claim to an empirical test using data from the Afrobarometer surveys and the AidData. The results indicate that exposure to Chinese aid projects creates negative perceptions among citizens regarding the state’s tax enforcement behavior. Interestingly, the study also reveals a positive association between Chinese aid and tax morale or compliance among citizens residing around Chinese aid projects. Noteworthily, these results are confined only to less democratic settings. A similar analysis for World Bank aid projects does not exhibit such a relationship. The findings suggest a tradeoff associated with Chinese aid. On the one hand, it promotes compliance among beneficiaries. On the other hand, it engenders weak tax enforcement perceptions. The implication is that if the negative consequences outweigh the positive ones, Chinese aid has the potential to undermine the government’s reputation for fiscal responsibility, which in turn poses challenges to the development of state capacity through robust fiscal contracts.

The Lure of Technocracy? Chinese Aid and Local Preferences for Development Leadership in Africa

AbstractShould politicians, technocrats, or the free market guide the economic development of a developing country? The historical development paths of countries vary widely. Public opinion concerning development models also differs across space and over time. Using Chinese aid data from AidData and the second round Afrobarometer survey, we study how Chinese aid affects local preferences for economic leadership in sixteen African countries, 2000–2005. Our causal identification strategy is to compare the preferences of respondents who lived near an aid project site where a Chinese project had been implemented at the time of the interview (treated group) to individuals who lived close to a site where a Chinese project would be initiated shortly after the interview (control group). We find that Chinese aid increases the local population's support for economic experts to run the economy. World Bank aid, on the other hand, has no impact on local preferences for economic leadership.

International Politics and the Subnational Allocation of World Bank Development Projects

Temporary United Nations Security Council (UNSC) members receive more World Bank projects. I consider the potential for UNSC status to influence aid allocation within recipient countries. While strategically important recipients might gain greater discretion over the internal distribution of aid, no clear evidence establishes whether World Bank aid tends to succumb to political pressures within countries. I examine whether political favoritism within countries varies with UNSC status and find little evidence for a connection. While cross-national lending may follow politics, subnational allocation seems to be unrelated to international politics, which has important implications for the efficacy of Bank assistance.

Foreign Aid, Norm Diffusion, and Local Support for Gender Equality: Comparing Evidence from the World Bank and China’s Aid Projects in Africa

Does foreign aid change local attitudes toward gender equality? Drawing on a theory of norm diffusion through intervention, we contend that when donors integrate norms into aid projects, such norms can be diffused to individuals in recipient countries. The World Bank and China are two comparable donors to examine this relationship. We matched the geocoded aid projects of the two donors from AidData and Afrobarometer surveys in Africa to test our hypotheses. Our strategy is to compare respondents’ attitudes toward gender equality who were near a site where the project had been implemented at the time of the interview to those who were close to a site where the project would be started after the interview. We find that the World Bank aid increases local support for gender equality and the results differ across sectors and gender. Aid going to gender-sensitive sectors has the most significant impact on women’s attitudes toward gender equality. In contrast, Chinese aid shows no similar effects. This study sheds light on the linkage between aid and social norm change and is expected to exert implications for policymakers and development practitioners adventuring in the land of aid.

A Comparative Study of Traditional Donors and Non-traditional Donors in Sri Lanka

This article examines subnational aid allocation patterns during the postwar period in Sri Lanka, focusing on whether war-affected areas receive aid. We use geocoding, mapping, and econometric analysis to understand whether war-affected districts received more aid than others after controlling for economic development. The article uses geocoded aid projects comparing the aid allocation priorities of the People’s Republic of China (PRC) as a bilateral donor and World Bank and Asian Development Bank as multilateral donors. The PRC and World Bank aid projects’ geocoded data come from AidData, while we geocoded Asian Development Bank projects at the ADM2 level. The data covers 2002–2014, both years included. The study finds that, in general, donors do not respond to the needs of the poorer and war-affected districts, which affects reconciliation and, thereby, long-term sustainable peace. Additionally, we find that China aid project allocations are motivated by domestic politicians, whereas that may be different for multilateral aid projects.

World Bank aid and local multidimensional poverty in Sub-Saharan Africa

To what extent can World Bank (WB) aid reduce poverty to achieve the sustainable development goals? Recent literature suggests that the WB prefers to target affluent areas, prompting speculation about its ineffectiveness in poverty reduction. We contribute to the literature by examining whether WB aid alleviates poverty at the project level under the traditional motivations of aid flows. Combining geo-coded project data (2000–2014) with the individual multidimensional poverty index in 31 sub-Saharan African countries, we employ difference-in-differences and instrumental variable estimation strategies to address endogeneity. We demonstrate that WB aid significantly alleviated multidimensional poverty where projects were implemented by increasing public resources rather than economic activities, but only for the poor in more developed areas. The principal-agent problem and aid conditionality could weaken overall effectiveness. Our results suggest that enhancing multilateral cooperation can avoid the WB's drawbacks in incentive structures and amplify its advantages in improving social welfare. • It is unclear whether World Bank aid reduces poverty, given its poor targeting. • We use DID and IV methods to study the impact of aid projects on local poverty. • World Bank aid reduced poverty by increasing public goods only in affluent areas. • The principal-agent problem and conditionality limited overall aid effectiveness. • This paper provides implications of enhancing multilateral co-operation for donors.

Aid and institutions: Local effects of World Bank aid on perceived institutional quality in Africa

Motivated by the lack of sub-national empirical evidence on the relationship between aid and institutional development, this study explores the local effects of World Bank aid on perceived institutional quality in African aid receiving countries. We combine geo-referenced data on the subnational allocation of World Bank aid projects to Africa over the 1995–2014 period with geo-coded survey data for 73,640 respondents across 12 Sub-Saharan African countries. The empirical results, which are robust across a wide range of specifications as well as to using alternative identification strategies, suggest a positive impact of World Bank aid on citizens’ expressed willingness to abide by key formal institutions. This applies for overall World Bank aid, but as may be expected, the estimated effects are more pronounced when restricting our attention to projects focusing on institution building. Notably, the observed effects concern finalized projects, not projects still under implementation, highlighting that institutional change is a slow process.

Childhood health and the changing distribution of foreign aid: Evidence from Nigeria's transition to lower-middle-income status.

With sustained economic growth in many parts of the developing world, an increasing number of countries are transitioning away from the most subsidized development finance as they exceed income and other qualification requirements. Cross-country evidence suggests that Development Assistance Committee (DAC) donors view the crossing over of the World Bank's International Development Association (IDA) eligibility threshold to signal that a country needs less aid, with subsequent reductions in both IDA and other donors' concessional funding. Within the health sector, it is particularly important to understand the implications of these status changes for children under five years of age since improving early childhood health is critical to fostering health and social and economic development. Therefore, we examine the implications of the IDA transition by measuring the extent t which World Bank commitments—including both IDA and IBRD—are directed to infant and child health needs in Nigeria. Ordinary Least Squares (OLS) models were used in a difference-in-differences (DID) strategy to compare World Bank IBRD/IDA lending before and after the crossover to regions with varying initial levels of under-five and infant need. We find that the infant need orientation of World Bank aid has increased post-crossover. Conversely, alignment of World Bank commitments to regional child needs appears to have diminished after Nigeria crosses the IDA threshold. However, these effects are statistically insignificant and therefore provides inconclusive evidence. This research addresses an important policy question because the transition away from concessional funding mechanisms will result in difficult tradeoffs in allocating limited health resources; without providing conclusive evidence that crossover results in changes in need-based allocation, it does offer an essential path for future research. These results are directly relevant to policy debates about what we know and do not know about aid in transition and health. This research's value is especially important in the Sustainable Development Goal (SDG) era in understanding how donor exits could derail progress in health improvement.

Which Wheel Gets the Grease? Constituent Agency and Sub-national World Bank Aid Allocation

Questions of aid allocation have long focused on discerning the motivation of development donors. Less attention has been paid to the interests and agency of recipient state governments and even less to the interests and agency of constituencies within those states. An implicit assumption is often that the ‘poor’ either passively receive the patronage of their benefactors or they don’t. In this paper, we instead suggest that depending on the motivation of a donor, their sensitivity to needy subnational constituencies in aid allocation also depends on the political empowerment of those groups. In particular, we take advantage of the unique socio-cultural structure in India to examine if the political agency of scheduled castes and tribes (SC/STs) can explain patterns of district-level allocation of World Bank education aid. Using district-level data on a multi-year World Bank education program, district-level proportions of SC/ST population and of members of parliament we identify poor, but empowered, constituencies. We find that SC/ST districts receive more aid, even when controlling for baseline poverty and educational performance, but that these results are strongest when these districts are politically empowered. Our findings suggest that while donors may indeed respond to recipient needs, those recipients who also speak loudly for themselves fare better, highlighting the importance of constituent agency.

Electoral motives and the subnational allocation of foreign aid in sub-Saharan Africa

This paper examines how electoral motives shape the subnational allocation of foreign aid commitments by employing a newly constructed geocoded dataset for 14 sub-Saharan African countries over the period 2000–2012. Our results provide strong evidence of a core voter strategy: African leaders diverting Chinese aid towards regions with a high concentration of political supporters. However, no evidence of such preferential treatment is found for World Bank aid, suggesting that aid from traditional donors is less vulnerable to political manipulation. Our results also reveal that checks and balances in recipient countries are an important mediating factor of aid misallocation: while copartisan regions receive larger amounts of Chinese aid in environments with weak checks and balances, these effects disappear when stronger checks and balances are in place. This paper also offers case study evidence from Ghana. Exploiting the 2009 regime change in Ghana and using a difference-in-differences framework, we provide further support of copartisan targeting and confirm that Chinese aid is more manipulable than World Bank aid in this respect.

The Role of Historical Christian Missions in the Location of World Bank Aid in Africa

Abstract This article documents a positive and sizable correlation between the location of historical Christian missions and the allocation of present-day World Bank aid at the grid-cell level in Africa. The correlation is robust to an extensive set of geographical and historical control variables that predict settlement of missions. The study finds no correlation with aid effectiveness, as measured by project ratings and survey-based development indicators. Mission areas display a different political aid cycle than other areas, whereby new projects are less likely to arrive in years with new presidents. Hence, political connections between mission areas and central governments could be one likely explanation for the correlation between missions and aid.

The political economy of aid allocation: Aid and incumbency at the local level in Sub Saharan Africa

Aid allocation within countries is often thought of as a strategic action by the incumbent leaders to further their own goals. Theoretically, however, the effects of aid may be either positive or negative and the empirical evidence is limited. By matching geo-coded data on aid projects to 101 792 respondents in five waves of the Afrobarometer, we investigate the effects of aid on incumbency support using project fixed effects. We estimate the effects for World Bank aid and Chinese aid separately and find positive effects for the former and no robust effect for the latter. For neither project donor do we find effects on turnout and that aid is not targeting areas with previously higher incumbency support. We find little support for the notion that economic voting is driving the result as individuals self-perceived economic conditions are not affected. The positive effects for the World Bank aid projects seem to be mediated by trust in the politicians, whereas we find no effects of Chinese aid on trust.

Which Wheel Gets the Grease? Constituent Agency and Sub-national World Bank Aid Allocation

Questions of aid allocation have long focused on discerning the altruistic, self-interested or meritocratic motivation of development donors. Less attention has been paid to the interests and agency of recipient state governments and even less to the interests and agency of constituencies within those states. An implicit assumption is often that the “poor” either passively receive the patronage of their benefactors or they don’t. In this paper, we instead suggest that depending on the altruism/egoism of a donor, their sensitivity to needy subnational constituencies in aid allocation also depends on the political empowerment of those groups. In particular, we take advantage of the unique socio-cultural structure in India to examine if the political agency of scheduled castes and tribes (SC/STs) can explain patterns of district-level allocation of World Bank education aid. Using district-level data on a multi-year World Bank education program, district-level proportions of SC/STs and SC/ST population and of members of parliament, we find that SC/ST districts receive more aid, even when controlling for baseline poverty and educational performance. These results are especially strong when these districts are politically empowered. Our findings suggest that while donors may indeed respond to recipient needs, those recipients who also speak loudly for themselves fare better, highlighting the importance of constituent agency.

­­­Всемирный банк и "нестабильные государства": динамика взаимодействия и структура помощи

The eradication of extreme poverty in fragile states is one of the central problems of global governance at the present time. Development of these states is hindered by instability, weak public and social institutions or ongoing conflicts and violence. The World Bank (WB) is a key partner of fragile states, which account for almost a third of the world’s population.This article is a continuation of research exploring the evolution of conceptual and practical approaches by the World Bank to cooperation with fragile states. Its methodology is based on a multilevel analysis of the securitization of foreign aid as proposed by J. Lind and J. Howell of the London School of Economics. The main focus of this examination is on the dynamics of the change of scale and structure of the World Banks’s aid to fragile states in comparison with global armed trends of providing aid to fragile states as well.This article concludes that statements about the priority of the Bank’s work in fragile states have not yet been realized in practice. The Bank remains committed to the standard approach to working with this group of recipients, which involves serious risks. The World Bank leans toward supporting projects in fragile states which increases volatility and reduces aid predictability. This trend undermines the development perspectives of recipient states.Attention is drawn to political factors influencing aid flows to fragile states and particularly to the tendency of increasing the share of aid provided to fragile states through Multi-Donor Trust Funds rather than through the mechanisms of the International Development Association. This trend indicates that the Bank is no longer a central point of aid distribution to the recipients, pointing to the lack of trust of donor states in the existing mechanisms and rules of aid distribution. It also reveals the expanding role of donors’ strategic interests in the process of choosing recipients of World Bank aid.

Chinese aid and local corruption

Considering the mounting criticisms concerning Chinese aid practices, the present paper investigates whether Chinese aid projects fuel local-level corruption in Africa. To this end, we geographically match a new geo-referenced dataset on the subnational allocation of Chinese development finance projects to Africa over the 2000–2012 period with 98,449 respondents from four Afrobarometer survey waves across 29 African countries. By comparing the corruption experiences of individuals who live near a site where a Chinese project is being implemented at the time of the interview to those of individuals living close to a site where a Chinese project will be initiated but where implementation had not yet started at the time of the interview, we control for unobservable time-invariant characteristics that may influence the selection of project sites. The empirical results consistently indicate more widespread local corruption around active Chinese project sites. The effect is seemingly not driven by an increase in economic activity, but rather seems to signify that the Chinese presence impacts norms. Moreover, Chinese aid stands out from World Bank aid in this respect. In particular, whereas the results indicate that Chinese aid projects fuel local corruption but have no observable impact on short term local economic activity, they suggest that World Bank aid projects stimulate local economic activity without any consistent evidence of it fuelling local corruption.

Aid, China, and Growth: Evidence from a New Global Development Finance Dataset

This paper introduces a new dataset of official financing — including foreign aid and other forms of concessional and non-concessional state financing — from China to 138 countries between 2000 and 2014. We use these data to investigate whether and to what extent Chinese aid affects economic growth in recipient countries. To account for the endogeneity of aid, we employ an instrumental-variables strategy that relies on exogenous variation in the supply of Chinese aid over time resulting from changes in Chinese steel production. Variation across recipient countries results from a country’s probability of receiving aid. Controlling for year- and recipient-fixed effects that capture the levels of these variables, their interaction provides a powerful and excludable instrument. Our results show that Chinese official development assistance (ODA) boosts economic growth in recipient countries. For the average recipient country, we estimate that one additional Chinese ODA project produces a 0.7 percentage point increase in economic growth two years after the project is committed. We also benchmark the effectiveness of Chinese aid vis-a-vis the World Bank, the United States, and all members of the OECD’s Development Assistance Committee (DAC). Our results indicate that Chinese, U.S., and OECD-DAC ODA have positive effects on economic growth, but we find no robust evidence that World Bank aid promotes growth. We also find that, irrespective of the funding source, less concessional and more commercially-oriented types of official finance do not boost economic growth. Finally, we test the popular claim that significant financial support from China impairs the effectiveness of grants and loans from Western donors and lenders. Our results do not support this claim.

Need, Merit and Politics in Multilateral Aid Allocation: A District‐level Analysis of World Bank Projects in India

AbstractWe assess the targeting of foreign aid within recipient countries by employing Poisson estimations on the determinants of the World Bank's allocation of project aid at the district level in India. The evidence of needs‐based location choices is very weak as long as the poverty orientation of overall commitments is taken as the yardstick. It is only for some sectors that we find stronger indications of needs‐based allocation when combining sector‐specific commitments with corresponding measures of need. The evidence for a merit‐based allocation of World Bank aid is even weaker. We typically do not find evidence that aid allocation is affected by political patronage at the state or district level. However, the World Bank prefers districts where foreign direct investors may benefit from projects related to infrastructure.

Aid and Growth at the Regional Level

This paper brings the aid effectiveness debate to the sub-national level. We hypothesize the nonrobust results regarding the effects of aid on development in the previous literature to arise due to the effects of aid being insufficiently large to measurably affect aggregate outcomes. Using geocoded data for World Bank aid to a maximum of 2,221 first-level administrative regions (ADM1) and 54,167 second-level administrative regions (ADM2) in 130 countries over the 2000-2011 period, we test whether aid affects development, measured as nighttime light growth. Our preferred identification strategy exploits variation arising from interacting a variable that indicates whether or not a country has passed the threshold for receiving IDA's concessional aid with a recipient region's probability to receive aid, in a sample of 478 ADM1 regions and almost 8,400 ADM2 regions from 21 countries. Controlling for the levels of the interacted variables, the interaction provides a powerful and excludable instrument. Overall, we find significant correlations between aid and growth in ADM2 regions, but no causal effects.