Chapter 6: Development Assistance

In Africa today, we recognize that trade and investment, and not aid, are pillars of development.

- Paul Kagame, President of Rwanda, 2004.

Paul Kagame. Credit: Veni Markovski, CC BY-SA 4.0, via Wikimedia Commons

The previous chapter used our framework to focus on the common determinants of state pathologies, particularly those due to non-cohesive political institutions and weak common interests.

The findings were summarized in the Anna Karenina matrix of Table 5.1. But the rest of the world does not, for the most part, stand idly by leaving countries in countries in conflict and with poorly functioning states to their own devices.

A whole development industry - comprising international organizations, donor governments and non-governmental organizations (NGOs) - tries to influence the paths of developing countries and are intent on offering a helping hand. In this chapter, we look at such efforts through the lens of our approach as developed in the first five chapters of the book.

We approach development assistance by supposing that an external agency, such as a donor government or multi-lateral organization, is considering some form of intervention.

The conventional intervention has been foreign assistance in the form of a transfer to increase the recipient government's budget. In the context of our comprehensive core model, such an infusion of resources can be modeled like an increase in natural resource rents.

The analysis of cash aid in our core model is novel because it considers the equilibrium responses to larger aid flows on a number of margins: policy choices, investments in state capacity, and investments in political violence. We develop a cost-benefit calculus for additional budgetary support viewed from the donor's perspective when the recipient country's responses are taken into account. This brings out how the benefits depend on the recipient country's circumstances and institutions.

Our framework can also be used to consider the impact of different forms of non-cash aid. Some of these are extremely controversial, as in the case of foreign military intervention or supply of weapons to governments or rebels. As our comprehensive core model allows for a margin of behavioral change affecting political violence, we are able to address these issues, in theory at least.

We also consider the less controversial area of technical assistance, i.e., foreign interventions aimed directly at increasing the capabilities of the state. Finally, we briefly consider governance reforms. Such interventions tend to arise in post-conflict situations in an attempt to reconcile group differences and hence to make peace credible.