The Incentive Effect Of Foreign Aid Under Alternative Political Regimes

Inspired by a new stream of research that shows the significant role institutionsrnplay in determining economic performance, aid effectiveness and aid allocation,rnthis study explores the relationship between aid, institutions and democracy.rnUsing cross-country data for 91 developing countries it examines the determinantsrnof aid and institutional quality and finds that selectivity is present and strong sincernthe end of the cold war in aid allocation by donors. However it finds no significantrnpositive incentive effects of this approach yet, but the pattem in the data showsrndemocracies are relatively weak in responding to the incentive effect the new rulernof aid allocation has on institutional reforms.

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