The Economics of Effective Budget Support
This research project aimed at formulating success criteria for budget support as an effective instrument to reduce poverty and promote economic growth in developing countries. With the purpose of gaining insights into factors determining the success of budget support operations this project intended to establish a solid theoretical foundation before developing existing models of the political economy of aid provision and allocation decisions by recipient governments based on the findings.
2009 - 2011 / completed
Over the last years, a strong consensus has emerged among development researchers and practitioners alike that in order to reach the ambitious development goals set out in the Millennium Declaration, the effectiveness of external support to developing countries needs to be improved substantially. Among practitioners in international aid, there is a similarly strong consensus (mostly shared by donors and recipients) that Programme-based Approaches (PBAs), in particular in the form of General Budget Support (GBS), currently represent the most promising avenue to make aid a more effective tool to promote poverty reduction and reach the Millennium Development Goals (MDGs) in developing countries. This consensus, however, sometimes seems to be primarily based on plausible criticisms of the traditional project-based approach to aid (locally confined impact, high transaction costs, following donor priorities, lack of government ownership, little impact on structural problems, undermining recipients’ own administrative and political capacities). Conversely, there is relatively scarce work aimed at establishing a sound theoretical foundation to the underlying hypothesis that aid in the form of budget support (through financing, policy dialogue, and accompanying technical assistance) can effectively contribute directly or indirectly to poverty reduction and economic growth in recipient countries.
Although not always made explicit, this hypothesis is primarily based on two important assumptions:
- That sustainable development processes can be induced and/or supported by means of well targeted and sufficient public spending
- That institutions play a key role for development, mainly in two aspects: First, as they determine the environment within which private actors engage in economic activities and thus the prospects for private sector led development. Second, good institutions are thought to lead to good policy choices not least with regard to public expenditure and appropriate allocation decisions.
There is a considerable amount of evidence and, thus, little controversy with regard to the important role of effective and transparent public sector institutions as a key environment variable for private sector development and the efficiency of public spending. Conversely, knowledge about the effectiveness of public spending, i.e. what makes public expenditure pro-poor and/or pro-growth is much more limited. Thus, the international discussion on budget support often moves little beyond the common assumption that increased funding of essential social services reduces poverty.
The proposed research aims at contributing to fill this gap by mainly recurring to models from several branches of economic theory and – where necessary – adapting them to questions related to the effectiveness of budget support as an aid instrument.
This project forms the first phase of a larger research program aimed at formulating success criteria for budget support as an effective aid instrument. To achieve this, it is intended in a first step to draw on several branches of economic theory (in particular growth theory and public finance) to establish a more solid theoretical foundation to the ongoing debate on budget support and other forms of programme-based approaches (PBAs) as an effective aid modality.
Based on these findings, in a second phase an attempt shall be undertaken to further develop existing models of the political economy of aid provision as well as allocation decisions taken by governments receiving budget support. The aim is to derive theoretically well-founded insights into influencing factors determining the success of budget support operations. Where possible, the relevance of the factors identified will be substantiated through empirical testing. From this, conclusions are to be drawn concerning the appropriate design of budget support operations with regard to appropriate financial resources, the design and content of the policy dialogue, conditionalities, country selectivity, etc.
Budgethilfe in der Entwicklungszusammenarbeit: weder Teufelszeug noch Allheilmittel
Leiderer, Stefan (2009)
Analysen und Stellungnahmen 10/2009
Zur Effektivität und politischen Ökonomie der Entwicklungszusammenarbeit
Faust, Jörg / Stefan Leiderer (2008)
in: Politische Vierteljahresschrift 49 (1), 129-152
Chancen, Risiken und Perspektiven von Budgethilfe in der Entwicklungszusammenarbeit
Leiderer, Stefan (2007)
Schriftliche Stellungnahme zur öffentlichen Anhörung des Deutschen Bundestages, Ausschuss für wirtschaftliche Zusammenarbeit und Entwicklung am 7. November 2007 in Berlin, Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Wie wirksam sind neue Modalitäten der Entwicklungszusammenarbeit? Erste Erfahrungen mit Programme-Based Approaches (PBAs)
Klingebiel, Stephan / Stefan Leiderer / Petra Schmidt (2007)
Discussion Paper 7/2007
Chances of effective cooperation and partnership with sub-Saharan Africa: programme-based approaches
Klingebiel, Stephan / Stefan Leiderer (2007)
in: Stephan Klingebiel (ed), Africa agenda for 2007: suggestions for the German G8 and EU Council Presidencies, Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (Discussion Paper 4/2007), 77-80
Chance für eine wirksame Kooperation und Partnerschaft mit Subsahara-Afrika: programmorientierte Ansätze
Klingebiel, Stephan/ Stefan Leiderer (2006)
in: Stephan Klingebiel (Hrsg.), Afrika-Agenda 2007. Ansatzpunkte für den deutschen G8-Vorsitz und die EU-Ratspräsidentschaft, Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) (Discussion Paper 18/2006), 79-83
Paradoxe Effekte: Befunde zur Wirksamkeit der Entwicklungszusammenarbeit im statistischen Ländervergleich
Faust, Jörg / Stefan Leiderer (2006)
in: eins 9/2006, 34-37
Diagnosis and reform of public financial management systems: a key cross-cutting issue for program-based approaches in development policy
Leiderer, Stefan (2005)
Briefing Paper 3/2005
Programmfinanzierung und öffentliche Budgets: neue Instrumente und Inhalte der Entwicklungspolitik
Klingebiel, Stephan / Stefan Leiderer / Petra Schmidt (2005)
in: Dirk Messner / Imme Scholz (Hrsg.), Zukunftsfragen der Entwicklungspolitik, Baden-Baden: Nomos Verl.-Ges., 73-87
Programme Financing and Public Budgets. New Instruments and Starting-Points of Development Policy
Klingebiel, Stephan / Stefan Leiderer / Petra Schmidt (2005)
Discussion Paper 3/2005
Budgetmanagement und Budgetfinanzierung in Subsahara-Afrika
Klingebiel, Stephan / Stefan Leiderer (2004)
in: Rolf Hofmeier / Andreas Mehler (Hrsg.), Afrika Jahrbuch 2003. Politik, Wirtschaft und Gesellschaft in Afrika südlich der Sahara, Institut für Afrika-Kunde, Wiesbaden: VS Verl. für Sozialwiss., 39-47
Discussion Paper 17/2020
The Current Column of 01 July 2020