Paper short abstract:

This paper presents theoretical and empirical evidence supporting the argument that commitment problems of foreign aid donors are essential for understanding recent changes in donor-government relations and aid delivery mechanisms in the developing world.

Paper long abstract:

This paper presents theoretical and empirical evidence supporting the argument that commitment problems of foreign aid donors are essential for understanding recent changes in donor-government relations and aid delivery mechanisms in the developing world. The existing literature on donor-government relations has predominantly focused on the uncertainty donors face when dealing with recipient governments, neglecting the uncertainty developing country governments face when dealing with donors. Using a simple model of aid policy bargaining, the paper illustrates that several puzzling facts about contemporary foreign aid practices, particularly the shift towards budget support by some foreign aid donors, can be explained as a consequence of donor commitment problems. Evidence from semi-structured interviews with policymakers and donor representatives in Rwanda and Tanzania supports the predictions of the model and sheds light on the sustainability of budget support over the long-term.