International aid and strategic interdependence: how common and conflicting foreign policy goals shape the supply of foreign aid

Williams, Miles D.

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https://hdl.handle.net/2142/116228 Copy

Description

Title

International aid and strategic interdependence: how common and conflicting foreign policy goals shape the supply of foreign aid

Author(s)

Williams, Miles D.

Issue Date

2022-07-14

Director of Research (if dissertation) or Advisor (if thesis)

Winters, Matthew

Doctoral Committee Chair(s)

Winters, Matthew

Committee Member(s)

• Dai, Xinyuan
• Pahre, Robert
• Carroll, Robert

Department of Study

Political Science

Discipline

Political Science

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Foreign aid
• Strategic interdependence
• Competition
• Buck-passing
• Political economy
• Development

Abstract

In this dissertation, I study an under-appreciated reality of international aid. It has been long recognized that foreign aid is a multipurpose tool of foreign policy that wealthy countries wield to effect their designs in international politics. What is less often considered is that as countries use foreign aid to accomplish various foreign policy objectives, sometimes these goals may conflict with or support the objectives of other donors. Under the rationalist framework often adopted in the study of international aid, this fact implies strategic interdependence in the aid allocation decisions of donor governments. What are the implications of strategic interdependence in foreign aid, and how does it shape the distribution of economic assistance in developing countries? In practice, this reality has a straightforward implication. While many studies examine patterns in international aid to draw inferences about the goals donors value in their foreign policies, how donors actually distribute foreign aid across recipients does not perfectly reflect their values. To the contrary, strategic interdependence creates incentives for donor governments deviate from giving aid purely in accordance with their objectives. Without a grasp for the role that conflicting and common foreign policy goals play in the allocation of international aid, scholars risk mis-identifying relationships between factors thought to determine aid flows and where donor governments offer more or less economic assistance. While previous studies have addressed this issue in some shape or fashion, none adopt a theoretical perspective or an empirical strategy as comprehensive as I do in this dissertation. Taken together, the four chapters that follow make contributions to theory, measurement, and analysis, providing novel results about the implications of strategic interdependence in international aid. In Chapter 1, I develop a mathematical model to study the implications of strategic interdependence in the political economy of aid. Analysis of the model underscores the mechanisms that drive strategic interdependence and reveals why donor governments may under or over commit resources in developing countries in pursuit of their foreign policy goals. It specifically identifies the conditions under which empirical analysis will provide informative estimates of donor responses to the giving of others. It also yields predictions about how the comparative resource endowments of donor governments and the strategic valence of donor goals in developing countries push some donors to the top, and others to the bottom, in committing aid in recipients. The model also offers insight into the welfare implications of strategic interdependence and suggests mechanisms that may account for the repeated failure of donor countries to successfully collaborate in the allocation of aid. Analysis shows that an uncoordinated Nash equilibrium among donor governments can often have an unintiutive location relative to a Pareto improving alternative under collective optimization. Even more, the existence of a Pareto improving alternative is not guaranteed. In many instances, the adoption of a collectively optimal solution may be individually worse for at least one donor government relative to a Nash equilibrium. These results illustrate the kinds of stumbling blocks that may continue to impede donor collaboration and, thus, the kinds of factors that ought to be considered in the design of institutions. In Chapter 2, I develop novel measures that will assist in empirical analysis of strategic interdependence in international aid. Using an approach I call SSC (sum of the squared covariances), I create composite measures of interest-based and needs-based factors that drive donor giving in developing countries. The first, which I call donor interest (DI), captures material, strategic, geographic, and social ties between donor governments and developing countries that make the latter salient targets for foreign aid to the former. The second measure, which I call recipient need (RN), captures developing country characteristics linked to greater need for donor assistance. By creating composite measures, I am able to probe how the interaction of donor-recipient ties and depth of recipient development need interact to shape donor responses to the aid given by others in developing countries with greater parsimony. To validate SSC, I compare SSC-constructed versions of DI and RN to those created by alternative methods of measurement construction and use various modeling techniques to compare their prognostic power. The SSC derived measures consistently outperform those created via other approaches. Further, to assess what these measures can reveal about broad patterns in international aid, I perform pooled analyses and analyses for individual donor governments and years to compare and contrast donor responsiveness to interest-based and needs-based factors. The patterns in some cases align with conventional wisdom about donor motives, but in other cases support different inferences about donor motives than reported in other studies. In Chapter 3, using the DI and RN measures created in the previous chapter, I provide confirmatory evidence that donor governments do in fact make their aid allocation on the basis of the giving of others and that these responses vary systematically with respect to the strength of interest-based and needs-based drivers of giving. Across the majority of the parameter space, donors show deference to others by giving less aid in recipients where others give more. But, there are instances where we observe interesting deviations from this response. On average, a donor gives *more* aid in recipients where others give more either when needs-based factors are low and interest-based factors for a donor are high, or when needs-based factors are high and interest-based factors are low. Conversely, a donor gives *less* aid in recipients were others give more either when needs-based factors are high and interest-based factors are high, or when needs-based factors are low and interest-based factors are low. Though many explanations may account for these patterns, they are arguably consistent with two prominent perspectives in the aid literature. One of these is called "targeted development" and the other "aid-for-policy exchange." The former is consistent with a common interest among donors for promoting development as a way to prevent transnational spillovers of developing country problems from affecting industrialized country populations. The latter is consistent with rival interests over policy concessions from recipients. Targeted development is proposed to dominate at the confluence of high interest and high need, while aid-for-policy exchange is proposed to dominate at low levels of interest and high need or high levels of interest and low need. Beyond the specifics of donor responses, the analysis in Chapter 3 further shows that strategic interdependence does indeed lead to deviations between what donors value and how they actually distribute aid. A comparison of estimates on DI and RN with and without accounting for different responses to peer aid reveals striking differences in how interest-based and need-based factors determine patterns in aid giving. When strategic interdependence is not accounted for, regression estimates on DI and RN are attenuated in value, while second-order interactions between DI and RN are either suppressed or inflated depending on the sample of years under analysis. Finally, in Chapter 4, I test arguments about how strategic interdependence shapes when and where donor governments come to be the dominant source of foreign aid in developing countries. Building on the theoretical analysis in Chapter 1 and insights on how donors respond to other-donor aid in different contexts from Chapter 3, we should expect a donor government to hold lead donor status at the confluence of two sets of conditions. A donor should take the lead, first, in high need recipients where interest-based factors are comparatively stronger for said donor relative to others, and second, when a donor is better resourced than its peers. The first set of conditions implies a development focus for donors (a non-rival goal) while the second confers a material advantage in financing international aid. Building on the dataset used in Chapter 3, I construct a measure of lead donorship and find patterns in donor giving consistent with the above argument. I further take a closer look at variations in lead donorship in Latin America and Southeast Asia where I find some patterns that are consistent with proposed theoretical mechanisms, and others that suggest additional dynamics are at work as donors give foreign aid. Overall, the results in Chapter 4 reflect the first attempt to empirically model the determinants of lead donorship. The patterns I uncover have significance, not only for the support they provide for my theoretical argument, but also for informing research on the consequences of lead donorship for aid effectiveness in developing countries.

Graduation Semester

2022-08

Type of Resource

Thesis

Copyright and License Information

Copyright 2022 Miles D. Williams

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