The Roles of Aid in Politics Putting China in Perspective

The conclusions, drawn from our various statistical analyses of the data, point collectively to the absence of an empirical association between aid and voting coincidence before and after enactment of the 1986 linkage strategy. The consistency of the findings across these various treatments is much too great to be attributed to chance. In conjunction with the U.S. government's legislatively mandated accounting that showed that the voting agreement of U.S. aid recipients declined after the linkage strategy was implemented, the statistical results of the evaluation identify a policy that failed.

Why did the 1986 linkage strategy fail to produce the effects it sought? We will advance several complementary interpretations. But first a caveat is in order.

On the surface it might appear that the linkage strategy is not amenable to evaluation because the Reagan administration never fully exercised its discretionary authority granted by Congress and thus did not follow through with its threat to link aid allocations tightly to recipients’ diplomatic conduct. But that lack of attention to implementation does not render the policy initiative nonexistent, nor policy evaluation moot. The declared initiative comprised a prominent policy. Indeed, the U.S. government spent considerable energy and resources promoting its intentions to punish defiant states and reward deferential ones in the hope that its actions would induce support within the United Nations. This threat was representative of what may be classified a tangible “foreign policy undertaking” (Rosenau, 1980:6 1). Accordingly, we can safely assume that the targeted state leaders took seriously a policy pronouncement that was stated so vociferously and repeatedly, even if they could not estimate the threat's credibility. Consequently, a policy proclamation of this sort, embedded in public law, is not a random act; it is a bold one whose consequences virtually cry out for analysis.

If words mean anything in diplomatic discourse – as assuredly they do – then the impact (or lack thereof) of these verbal communications requires analysis if the study of interstate relations is to advance. The linkage strategy is a paragon of a formal diplomatic effort to exercise influence through a series of pronouncements that attempted to extract political deference through economic threats. Hence the case is relevant to and holds implications for a wide spectrum of theoretical questions concerning foreign policy compliance, sanctions, economic statecraft, and bargaining. For in this case we have an unusual example of government officials who explicitly enunciated a problem, identified the solution they sought to remedy this problem, postulated the results that initiative was expected to produce, and identified the criteria by which the success of the initiative was to be assessed (as calculated by the government's own measures). What followed as a result of the effort tells us much about the practice of statecraft in the contemporary system and the limits of the system's wealthiest power.

The results clearly illustrate that the solution to the problem was inadequate to reverse the unfavorable conditions in the United Nations that so concerned the Reagan administration. It is therefore pertinent to ask why.

First, our findings add evidence to the discourse on economic sanctions, which posits that such pressures, whether threatened or imposed, are likely to confront stiff resistance from target states. The resilience of aid recipients clearly demonstrates that their policies were driven more powerfully by interests other than by the economic threat of a hegemon. Even though the bilateral relationship between donor and recipients was highly asymmetrical, the limits to the exercise of influence by a dominant state over weak states were revealed. This conforms to other evidence (for example, see Singer, 1972, and Menkhaus and Kegley, 1988) that subordinate states often do not act compliantly toward core states on which they are economically dependent.

The pattern illustrated – that poorer states respond with indifference toward economic threats – is also consistent with most previous research on sanctions. As Hufbauer and Schott with Elliott (1983:76) found from their 70-year survey of sanction “episodes,” “At most, there is a weak correlation between economic deprivation and political willingness to change . . . The economic impact of sanctions may be pronounced . . . but other factors in the situational context almost always overshadow the impact of sanctions in determining the political outcome.”

The history of international economic sanctions and reprisals attests to the unusual conditions in which they have proven effective (Wallensteen, 1968; Daoudi and Dajani, 1988). Such measures have rarely succeeded, even under favorable circumstances; under conditions of aid and trade dependence, political compliance rarely emerges – these ties fail to bind (see Roeder, 1985). Auspicious conditions clearly were not present in 1986 when the U.S. undertook its effort to extract compliance with its economic leverage. And the setting – the United Nations – was an inhospitable environment of cross-cutting alignments in which to overcome the inertia of voting practices. ¹⁶

The inability of the policy to achieve its intended goals may also be attributable in part to the assumptions the Reagan administration embraced about the motives of aid recipients and the incentives to which they would respond. American officials appeared to operate from the assumption that countries in need of foreign assistance would sacrifice their interests and freedom of choice to avert economic sanctions. That belief may have been unwarranted (see Richardson and Kegley, 1980) in that it overlooked the probability that Third World countries would not interpret aid as requiring political concessions. This conclusion is reinforced by the evidence showing that the countries responding most deferentially after 1987 were the states least in need of assistance; this suggests that recipients acted primarily in terms of their strategic interests rather than their economic needs.

Moreover, many recipients not only look askance at the equation of gifts for deference but regard the linkage as exploitative (Krasner, 1985). Instead of viewing foreign aid as a benevolent form of global welfare, some observers assail it as a seductive means for the powerful to coopt the powerless. Past studies are rife with denunciations of Aid as Imperialism (Hayter, 1971) that is Zapping the Third World (Linear, 1985). Initiatives such as America's aid-for-support linkage strategy are often cited as evidence that extraordinary costs are attached to foreign aid transfers. Overlooked, perhaps, were realistic assessments of How Foreign Policy Decisions are Made in the Third World (Korany, 1986) – a subject that this study recommends exploring.

As Harsanyi (1962) has shown, to predict the successful exercise of influence, it is important to consider both the costs to a dominant country of extracting foreign policy compliance and the costs to the dependent country of defying the other’s attempt at coercion. For many recipients of U.S. assistance, the costs of deference to a powerful donor presumably exceeded the benefits.

The U.S. government was equally constrained by its own economic limitations. Because net levels of U.S. foreign aid declined even before the threats and the linkage strategy were enunciated (as large budget and trade deficits mounted), the “carrot” of foreign aid that U.S. leaders dangled before aid recipients was insufficient to be taken seriously; it is unlikely that many recipients perceived meaningful rewards to be available. A “reverse political effect” (Renwick, 1981:86) could have been operative that undermined U.S. credibility while emboldening recalcitrant aid recipients. In this political climate, the U.S. aid program was increasingly dominated by major recipients representing its established security interests.¹⁷ This restricted the flexibility of the entire program and reduced the salience of nonmilitary criteria in funding decisions which, while providing further ammunition to critics of foreign aid, illustrated the subservience of foreign assistance to geostrategic considerations.

It is also evident that a cohesive plan of action was not implemented by the United States to pressure recipient states for the cooperation that was sought. Such an effort requires not only heated rhetoric on the floor of the General Assembly but concerted interagency coordination extending to the embassy and bureau levels. That institutional coordination was not forthcoming, for reasons well explained by the “bureaucratic politics” paradigm as it applies to the making of American foreign policy (see Hilsman, 1990). Instead, largely due to their role and mission, U.S. diplomats at the United Nations quickly shifted to other aspects of behavior within that multilateral forum.¹⁸ They did not receive support from other agencies responsible for the implementation of American foreign policy, including the White House itself. In his legislatively mandated report on the 1988 session (which featured an all-time low aggregate coincidence rate of 15.4 percent), U.N. Ambassador Vernon Walters sought to defuse criticism with his praise of what he termed “a productive session” by arguing, “The statistics do not tell the complete story. We need to look beyond them” (U.S. Department of State, 1989:1-4).

Instead of the aggregate record, Ambassador Walters explained that increased improvement in “key votes” was more salient to the United States,¹⁹ as was an effort to resolve issues by consensus and to silence anti-American “name-calling” on the floor of the General Assembly. At issue was whether this was a diplomatic way of departing from an ineffective strategy without taking the embarrassing step of acknowledging that the original linkage strategy had been jettisoned.

In the apparent absence of ongoing U.S. efforts toward pursuing an aid-for-agreement linkage, and given the limited economic resources available to back the strategy, the aid program was consistently driven more by bureaucratic momentum and security considerations than by case-by-case evaluations of recipients’ diplomatic conduct. This clear pattern should caution current and future policymakers against presuming that the entrenched political dynamics governing the distribution of American foreign aid can be easily modified through an effort to make such ancillary concerns as recipients' voting behavior in the United Nations a primary consideration.

For subsequent research, this pattern also adds empirical evidence to support the thesis that bureaucratic momentum powerfully drives U.S. budget policy and that other factors are often more potent than economic threats in influencing the degree to which U.S. policy positions receive support from the recipients of American foreign assistance. More generally, the inability of the Reagan administration to sustain interest in and effectively carry out its strategy suggests the need for more penetrating empirical and theoretical analysis of the obstacles to a democracy's conduct of foreign affairs. No account of the allocation of American foreign aid programs and its consequences can be complete without attention to the domestic and institutional influences on changes in that relationship.

James Barber (1979:379) underscored this when he advised that “sanctions cannot be isolated from other international and domestic issues. They may clash with other interests, or be given a lower priority than other goals of the imposing states.” The subsequent attempt by the U.S. government to link U.N. support and foreign aid apparently overlooked this principle; as a consequence, the threats intrinsic to the bargaining strategy lacked credibility.

The Reagan administration’s effort failed ultimately because it applied the American foreign aid program to uses for which it was never designed. To exercise influence, aid allocations must consider the interests, values, and perceptions of those whom the United States wishes to influence. It is neither realistic nor consistent with realpolitik logic to expect others to conform to pressures by adopting policies that run counter to their national interests.

Kilby, Christopher (2009), “The Political Economy of Conditionality: An Empirical Analysis of World Bank Loan Disbursements,” in Journal of Development Economics, Vol. 89, pp. 51-61.

This paper presents indirect evidence that pressure from the U.S. has undermined World Bank imposition of structural adjustment conditionality. For countries not friendly with the U.S. (countries that do not make concessions to the U.S. position in important UN votes), there does appear to be a significant degree of enforcement. When these countries have active World Bank structural adjustment loans, poor macroeconomic policy is associated with lower disbursements and the effect can be substantial. For countries that are friendly with the U.S., there is little evidence of enforced conditionality. For this second group, there is no substantial link between macroeconomic policy and disbursements. This pattern reoccurs in a range of specifications, across geographic regions, and over different time periods and is robust to a number of estimation methods. In contrast, no similar pattern is found when SALs are not active, again indicating that the pattern is driven by selective imposition of structural adjustment conditionality.

These results highlight donor pressure as an important alternate explanation for the failure of conditionality, one that merits more attention from researchers and reformers. This issue has been explored empirically in the context of the IMF (Stone, 2002, 2004; Vreeland, 2005) but not previously for the World Bank.

Why does it matter what is the cause of conditionality slippage? Efforts to reform structural adjustment have focused increasingly on selectivity to change bureaucratic incentives, reduce problems of information and commitment, and promote ownership of programs (largely through the PRSP process). These reforms may have significant merit but do not address the issue of donor pressure that can, as before, undermine borrower incentives and World Bank credibility. Other more fundamental reforms that aim to reduce donor influence – changes in World Bank governance, ending the tradition of allowing the U.S. to select the World Bank president, developing alternative sources or methods of funding – also need to be explored.

Garnering sufficient donor support for such fundamental reforms is not straightforward but may be aided by more research to better understand the impact of international politics on World Bank programs and the costs associated with resulting distortions. Do case studies and other direct evidence (e.g., new data sources that give World Bank disbursements and tranche release conditions by loan) support the indirect evidence presented here? Does international politics also influence which countries get World Bank SALs and the tightness of the conditions spelled out in loan agreements? Are eventual outcomes worse in cases where conditionality was not enforced? The literature on the IMF has explored many of these questions and may provide important guidance.

Ultimately, donors like the U.S. have many bilateral instruments they can use to pursue foreign policy objectives. These include bilateral economic aid, military aid and trade policy. Part of the calculus they engage in when deciding how to reward friends (or punish enemies) is to compare the costs of delivering rewards directly via bilateral instruments with the costs of exerting pressure on IFIs like the World Bank. If donors can be convinced that the cost of using IFIs is too high because of deleterious effects on the unique functions of those institutions, then fundamental reforms may be possible.

This paper examines the influence of Japan and the United States over the geographic distribution of Asian Development Bank lending. Using panel data from 1968 to 2002 for less developed Asian countries, a two part model points to significant donor influence. The exclusion of China and India (75% of the region’s population) from ADB lending prior to the mid-1980s and their restricted level of borrowing thereafter overshadows other, positive humanitarian dimensions of ADB lending. Even setting aside the cases of China and India, donor trade interests and proxies for geopolitical interests appear to play a larger role than do humanitarian factors.

The two part model includes a selection equation and an allocation equation. The selection equation examines the probability that a country will receive funds (eligibility). The allocation equation examines the level of funding among countries that did receive ADB funds. In line with humanitarian principles, the selection equation indicates that poorer and (especially more recently) democratic countries are more likely to receive ADB funds. However, more populous countries are less likely to receive ADB funds and, ceteris paribus, eligibility for ADB funding does not mirror the distribution of bilateral aid from a group of small donors known for their relatively humanitarian aid programs. Japanese trading partners and countries favored by Japanese bilateral aid are more likely to receive ADB funds, suggesting Japanese influence. The link between U.S. variables and selection is more complex: countries favored by U.S. bilateral aid are more likely to receive ADB funds but countries with strong U.S. trade ties are less likely to receive ADB funds. Overall, the estimated effects of Japanese and U.S. interest variables are larger than the estimated effects of humanitarian variables in the selection of countries to receive ADB funds.

Conditional on being selected to receive ADB funds, a country’s level of funding increases with its population—up to a point. Holding other characteristics constant, funding increases with population except for the largest countries (notably Bangladesh and Indonesia before 1987 and China and India since then) which generally receive dramatically less in comparison to their populations. Of the countries receiving funds, poorer countries receive more, ceteris paribus. In the allocation equation, democracy appears to have played a role earlier in the sample period. However, as with the selection equation, after controlling for other factors, the level of ADB funding does not mirror the distribution of bilateral aid from a group of small donors known for their relatively humanitarian aid programs. In contrast, World Bank loan allocation does, both within Asia and globally. Donor interest variables, particularly those intended to reflect geopolitics, are significant in the allocation equation primarily in the latter half of the sample period. During that period, higher Japanese bilateral aid and higher U.S. bilateral aid are both associated with more ADB funding, with the link three times larger for Japanese bilateral aid. Voting alignment with Japan in the UN is associated with less ADB funding in the first half of the estimation period and with more ADB funding in the second half, the latter result driven by China and India.

Overall, the evidence suggests that both Japan and the U.S. have systematic influence over the distribution of ADB funds. Whether examining selection or allocation, discrimination against China (attributed to U.S. Cold War politics) and India (driven by Japanese concerns) overshadows other potentially humanitarian aspects of ADB lending. In a similar study of the World Bank, Fleck and Kilby (2006) find that the single largest factor is population with more funds going to larger countries. The influence of U.S. interests is roughly on par with that of humanitarian factors other than population. The ADB case differs in that humanitarian considerations play a less apparent role. In this sense, donor interests more heavily influence the allocation of resources in the ADB than in the World Bank.

Kilby, Christopher Dreher, Axel (2009), “The Impact of Aid on Growth Revisited: Do Donor Motives Matter?”, in Economic Letters, Vol. 107, No. 3, pp. 338-340.

Research on foreign aid identifies aid allocated both based on recipient need (RN) and donor interests (DI). Following Boone (1995), most aid effectiveness studies capitalize on this by using political instruments to identify the impact of aid on growth (Burnside and Dollar, 2000; Rajan and Subramanian, 2008). However, interpreting estimation results as the general impact of aid on growth requires the strong homogeneity assumption that donor motives do not influence aid effectiveness. Only a handful of studies consider the impact of donor behavior on aid effectiveness in detail (Bobba and Powell, 2007; Headey, 2008; Bearce and Tirone, 2009; Minoiu and Reddy, 2010).

In this paper, we call this homogeneity assumption into question by developing an aid allocation model in which recipient government policy choices link donor motives to the impact of aid. We test the assumption by including an estimate of need-based aid in a crosscountry time-series growth regression. The test rejects the homogeneity assumption, suggesting a more cautious interpretation of past research results. […]

Starting with a model of aid allocation, policy choice and growth, we illustrate how donor motives can influence the effectiveness of aid, undermining the homogeneity assumption implicit in the geopolitical instrumentation strategy used in many aid and growth regressions. We also test and reject this assumption empirically. This complicates interpretation of results in much of the aid effectiveness literature and poses a dilemma about how to deal with potential endogeneity.

We have addressed several questions regarding the voting patterns of the UN General Assembly: What are the underlying issue-dimensions reflected in the resolutions put to roll-call vote? How do member states align themselves with respect to these dimensions? How can we characterize those states, and what implications do the characterizations have for political processes in the UN? Our analysis focused primarily on three post-cold war sessions of the General Assembly, but we were also able to compare those voting patterns with patterns characteristic of earlier years.

With the end of the cold war, voting patterns in the General Assembly reflect the erosion of the East-West division that had dominated many UN activities. Left behind as major foci are many issues relating to the self-determination of colonized peoples and, to a lesser extent, questions of political rights within states. During the cold war era, when many “nonaligned” states voted regularly with the Soviet bloc, the modal point of the General Assembly often was found in the southeast quadrant. It is now somewhat to the southwest. Four of the five permanent members of the Security Council, however, are toward the northwest, suggesting their current ability to hold that body on a very different course from the General Assembly.

The North-South split now characterizes voting positions as much as the East-West split once did. The importance of North-South issues is not new, but during the cold war years it tended to be conflated with and be overshadowed by East-West issues as a source of division.¹⁷ The resurgence of North-South voting renews and strengthens a long-standing alignment, one now likely to dominate the UN for a substantial period in its future. Voting alignments are likely to be shaped by state preferences along developmental lines, and views of self-determination and economic development will reflect the continuing great differences between rich and poor nations.