Preventing the Negative Externalities of Development: Aid Compliance, Taxation, and At-Risk Groups

Presented at the American Political Science Association (APSA) conference, 2021.

This paper examines the potential negative externalities of foreign aid projects: that is, costs that accrue to people outside the aid transaction between the state (the implementer) and the aid financier (the supervisor). I argue that compliance with policies to prevent negative externalities in aid projects mostly does not involve strategic calculations by donors or financiers. Instead, compliance with aid financiers' social and environmental risk management policies mostly relates to state capacity, particularly taxation/fiscal capacity, which captures states' social contracts with their citizens. Essentially, paying taxes, especially when citizens make mandatory social contributions, gives them to bargaining power and experience to demand more from the state when implementing aid projects. To test the hypothesis, I compile a new dataset on states' project-level compliance with World Bank safeguard policies on involuntary resettlement, indigenous peoples, and environmental protection. Preliminary statistical support for the hypothesis suggests a need for the literature to focus more on supervisor-implementer relationships than traditional, top-down relationships between principals (powerful donor countries) and agents (international organizations). [Preliminary Draft Paper]