Election Cycles and the Allocation of Humanitarian Aid: Paper published in the European Economic Review

In this paper, joint with Scott Strickland (former MA student doing a joint MA between Economics and IDS at the University of Guelph), we ask the question whether donor countries increase levels of aid just before elections. We find yes and no. Donors don’t increase overall aid, or more specifically ODA, but they increase humanitarian aid in the year before elections. We believe that this result makes sense as humanitarian aid efforts are typically supported over the full range of the political spectrum. We establish a causal relationship between elections and humanitarian aid allocations as we focus on countries with fixed election dates. The paper on election cycles can be found here.

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Paper forthcoming in the European Journal of Political Economy

My paper on social capital among small informal and formal firms is forthcoming in the European Journal of Political Economy. This paper entitled “Social capital as a substitute for formality: Evidence from Bolivia” shows that informal firms use social capital as a substitute for formal status. Formal small firms — in contrast to informal ones — maintain a production location with better public infrastructure and they are more accessible for clients. In both cases, social capital based on social links can perform  these functions. Social capital increases the accessibility of informal firms and having family around and being connected in a neighbourhood provides important security benefits in the outskirts, thereby positively affecting a firm’s investment incentives.

From a methodological point of view a challenge that had to be overcome is the lack of valid instruments to identify a causal effect of our variable of interest on outcome variables. The paper tackels this challenge by constructing a theoretical model that models of how possible biases affect the estimates in this setting. The theoretical model shows that biases work in opposite direction depending on whether social capital  complements or substitutes formal status. Based on this analysis we find that social capital works as a substitue rather than a compliment. For more information on this paper click here.

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IMF Working Paper

The paper (joint with Luc Moers) entitled “Donor Competition for Aid Impact, and Aid Fragmentation” appeared today as an IMF  Working Paper (WP/12/204).  To download the paper click here.

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Donor Competition leads to Aid Fragmentation (New Paper!)

Scatterplot between budget share and number of aid recipients

The graph above shows a scatter plot between the donor’s share on the global budget and the number of its aid recipient countries. The size of the circles is weighted by the aid/GNI ratios (the smaller the circle, the less generous a donor) For example, Canada as a relatively small and less generous donor has more aid recipients than any other country with a similar aid budget.

Aid is highly fragmented: In 2009 a total of 142 developing countries receives a positive amount of gross aid. Among the bilateral donors, Japan disbursed about 11 billions US$ to 140 of the 142 aid-recipient countries, the US about 18 to 138, Canada 1.9 to 137, Germany 5.8 to 136, France 4.9 to 129, and the UK 4.6 to 127 (see graph). Thus, large donors and some of the smaller donors  are everywhere!  In this paper (for the paper click here) we ask the question: Why is foreign aid so fragmented? The answer we propose is that aid is fragmented because donors compete for aid impact.

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Social Capital in the Informal Sector in Bolivia (Revised Paper!)

Picture of Tumusla Street in La Paz Bolivia

Tumusla Street in La Paz Bolivia

A common perception is that formal firms are large and use modern production technology while informal firms tend to be small and not very productive. This survey on garment producers in Bolivia contradicts this perception: We find that formal and informal firms are surprisingly similar. They are of similar size, use similar production technologies, and they have a similar sales location. This raises in my view an interesting puzzle: Firms serving similar markets and making similar input and output choices differ in the extent to which they choose to comply with tax regulations.  The paper (for the paper click here) offers an explanation that resolves this puzzle. 

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Foreign Aid: For Consumption or Investment? (New Paper!)

An important reason for giving foreign aid is that it may help to foster economic development in the recipient country. Less developed countries are characterized by low income, and this results in low levels of savings and investments. Wealthy countries may therefore be able to help the poorer countries by providing financial assistance, that is, funds to make capital investments. But will foreign aid really be used for investments?  If there is some truth to the permanent income hypothesis, then aid that is more permanent in its nature should be consumed rather than invested. This yields in our view an interesting prediction: Aid that is temporary will affect growth rates, while aid that is more permanent will not. In this paper (for the paper click here) we investigate this prediction. We find the following:
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