The Political Economy of Bilateral Foreign Aid

Abstract

Despite its developmental justification, aid is deeply political. This paper examines the political economy of aid allocation first from the perspective of the donor country, and then the political economy of aid receipt and implementation from the perspective of the recipient country. When helpful, it draws from studies of multilateral aid. Following those discussions, the paper explores solutions, employed by the development community, to the distortions brought about by the political economy of bilateral aid—distortions that steer aid away from achieving economic development in the recipient country. As it turns out, none of these solutions can shield foreign aid from the heavy hand of politics. Developing countries heavily influenced by foreign aid end up with a different, and novel, governing apparatus.