The Money-Moving Syndrome and the Effectiveness of Foreign Aid

• Main Author: Monkam, Nara Françoise Kamo
• Format: Others
• Published: Digital Archive @ GSU 2008
• Subjects: Organizational Imperatives; Performance Measure; Incentive Contract; World Bank; Foreign Aid; Money-Moving Syndrome; Donor Agencies; Incentive Structures; Aid Effectiveness; Economics
• Online Access: http://digitalarchive.gsu.edu/econ_diss/52; http://digitalarchive.gsu.edu/cgi/viewcontent.cgi?article=1051&context=econ_diss

This dissertation examines in depth one of the potential causes of the low performance of foreign aid; in particular, the role incentive structures within international donor agencies could play in leading to “a push” to disburse money. This pressure to disburse money is termed as the “Money-Moving Syndrome”. In this dissertation, the “Money Moving Syndrome” exists when the quantity of foreign aid committed or disbursed becomes, in itself, an important objective side by side or above the effectiveness of aid. The theoretical analysis relies on the principal-agent theory to explore how donor agencies’ institutional incentive systems may affect the characteristics of an optimal and efficient incentive contract and thus give rise to the “Money-Moving Syndrome”. We adapted the basic framework developed in Baker (1992) to fit the organizational settings of international development agencies. The model concludes that the extent to which a performance measure based the amount of aid allocated within a specific period of time would lead to the “Money-Moving Syndrome” and affect aid effectiveness depends on the level of institutional imperatives for survival and growth, the degree of aid agency’s accountability for effectiveness, the level of corruption in recipient countries and the degree of difficulty to evaluate development activities. Due to data unavailability regarding other bilateral and multilateral aid agencies, the empirical framework tests several predictions of the theoretical model by examining whether money moving incentives affect World Bank’s decisions regarding project loan size in developing countries. Overall, the empirical results suggest that there seems to be some degree of “Money-Moving Syndrome” in effect within the World Bank.