The Political Economy of Foreign Aid Flows
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View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by University of Birmingham Research Archive, E-theses Repository Title: The Political Economy of Foreign Aid Flows By JIE SHENG LI A Thesis submitted in fulfilment for the Degree of Doctor of Philosophy Department of Political Science and International Studies School of Government and Society College of Social Sciences University of Birmingham January 2015 University of Birmingham Research Archive e-theses repository This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder. Abstract: This thesis examines the rise in bilateral aid disbursements over multilateral aid between 2000 and 2010. It would be simply stated that such a trend would be due donor nations focusing on strategic self interests. I argue, using a combination of principal-agent theory, foreign policy analysis and the effect of institutions, that new political actors in donor nations found a window of opportunity to alter the level foreign disbursements and in several cases, increase the overall level of foreign aid. Bilateral aid eventually rose due to both the worldviews of these new decision makers as well as how their policies were influenced and shaped by local institutions. In this thesis, I focus on the US, the UK and Japan as donor nations and the World Bank’s International Development Association. In the US case, political and cultural institutions along with the worldviews Bush Administration officials shifted US bilateral aid upwards. In the UK, local institutions along with the perspectives of New Labour officials result in higher British bilateral aid disbursements. Japan’s political actors initially focused on the country’s economy but later actors, with their worldviews and shaped by historical norms, increased Japan’s bilateral aid vis-à-vis its contributions to IOs. i Acknowledgements: This thesis is written solely by me, but could not have been so without the support and suggestions from a host of family and friends. First, I would like to thank my parents, who supported me in many ways throughout each day of my thesis research and writing. Thanks must naturally also go to my two Supervisors, Andre Broome and Edward Newman. Their constant advice was probably the most essential tool for shaping this entire thesis. The interviewees and research acquired for this thesis would not have been possible without the assistance of several friends and colleagues. For starters, I would like to thanks several individuals in management or leadership positions for guiding me towards interviewees. In no particular order, my heartfelt thanks goes out to: Marjory-Anne Bromhead, a former World Bank Group official, Joachim von Amsberg, Vice President, World Bank Group, Jerry Mark Silverman, former USAID/World Bank official, Marie- Ange Sicaire, librarian, OECD, and Scott Morris, former Deputy Assistant Secretary, US Treasury. I would also like to extend my gratitude to all my interviewees for making time for me to answer my list of questions. Many thanks also to their personal assistants, who facilitated each meeting. There are several academics and academic colleagues who did not supervise, but discussed my ideas and helped me shaped my arguments. Again, in no particular order, I would like to thank: Soyuen Kim, Mike Tierney and Saori Katada. I would also like to thank my colleagues at POLSIS in Birmingham for the deep conversations relating to my topic and their research projects. Finally, there are also many other friends whom I met along the way who helped me throughout each year of my thesis. I gladly appreciate the talks I had with John Primrose, Jade Cassidy, Pranay Sinha, Georgios Tsopanakis and Céline Cornereau. ii Table of Contents: Chapter 1: Introduction: The political economy of foreign aid .....................................................p.1 1.1 Background .................................................................................................................p.1 1.2 Key Research Question ...............................................................................................p.2 1.3 Justification and parameters ........................................................................................p.3 1.4 Contributions to the literature .....................................................................................p.9 1.5 Field work and data Sources .....................................................................................p.10 1.5 Structure of the thesis................................................................................................p.12 Chapter 2: Literature Review: Bilateral, Multilateral and non-core aid....................................p.14 2.1 Introduction ...............................................................................................................p.14 2.2 Aid disbursements across the last decade .................................................................p.17 2.3 The creation of the IDA ............................................................................................p.20 2.4 IDA replenishments and burden sharing...................................................................p.22 2.5 IDA’s financial power ...............................................................................................p.26 2.6 Literature regarding Bilateral Aid .............................................................................p.28 2.7 Differences and similarities between the two channels ............................................p.35 2.8 Choosing between the two aid channels ...................................................................p.39 2.0 Aid through trust funds .............................................................................................p.42 2.10 Conclusion ..............................................................................................................p.44 Chapter 3: Theoretical Framework: Complementing PA Theory with FPA and Institutions .p.46 3.1 Introduction ...............................................................................................................p.46 3.2 The benefits of delegation .........................................................................................p.47 3.3 More than one principal and agent ............................................................................p.50 3.4 Agency slack .............................................................................................................p.53 3.5 Mechanisms of control ..............................................................................................p.56 3.6 Controlling the agent.................................................................................................p.57 3.7 Delegation and its limitations ...................................................................................p.59 3.8 Introducing foreign policy analysis ..........................................................................p.59 3.9 Institutions.................................................................................................................p.62 3.10 Conclusion ..............................................................................................................p.63 Chapter 4: United States: The Giant Donor ..................................................................................p.64 4.1 Introduction ...............................................................................................................p.64 4.2 US aid figures ...........................................................................................................p.66 iii 4.3 The governance of the US aid system .......................................................................p.67 4.4 US aid levels between 2000 to 2003 .........................................................................p.74 4.4.1 Modest increases in US bilateral aid ......................................................................p.74 4.4.2 Deadlock with funds for IDA 12 ...........................................................................p.81 4.5 The creation of the MCC ..........................................................................................p.84 4.6 The MCC and congressional appropriations .............................................................p.90 4.7 USAID in the second term of the Bush Administration ...........................................p.95 4.8 Bush administrations’ USAID and MCC aid levels compared ................................p.98 4.9 IDA replenishments across the First and Second Bush administrations ...................p.99 4.10 US aid flows in practice ........................................................................................p.106 4.11 From George Bush to Barack Obama ...................................................................p.109 4.12 Conclusion ............................................................................................................p.115 Chapter 5: United Kingdom: The Generous Donor