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Montinola on aid conditionality

Abstract: Many scholars argue that conditionality – the setting of policy goals in exchange for access to aid - does not work. None, however, investigates whether aid’s effect on policy is mediated byrecipient country characteristics. I argue that conditional aid’s efficacy depends on recipient countries’ level of democracy because the value of aid to governments depends on the degree to which it helps them maintain power, and recent work shows that the marginal impact of aid on political survival increases with level of democracy. I test this argument on data from 67 countries over the period from 1980 to 1999. I focus on aid’s impact on fiscal reform, one of the most commonly stipulated conditions in aid-for-policy arrangements. I show that aid promotes fiscal reform, but only in more democratic countries, and the positive impact of aid on reform increases with level of democracy. My work thus shows that conditionality is effective but only when applied on democratic governments.

Gabriella Montinola, “When Does Aid Conditionality Work?,” unpublished paper. Available here.

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