Bureaucratic Autonomy and Donor Strategic Interest in Multilateral Foreign Aid: Rules vs. Influence

Presented at the Political Economy of International Organizations (PEIO) conference.

This paper uses insights from history, the principal-agent framework, and new data to re-examine a major pattern in the international organizations and foreign aid literatures. Although numerous studies suggest that powerful donor countries' strategic interests to trade aid for influence significantly corrupt international organizations, I posit that such arguments and empirical patterns are less robust. Instead, understudied institutional design features, bureaucratic culture, external shocks, and asymmetric information problems underpin why bureaucracies are mostly immune to donors' strategic interests. In particular, powerful donor countries (principals) have difficulty monitoring and controlling bureaucracies (agents) on tasks entailing longer time horizons. I analyze the argument's empirical relevance in Multilateral Development Bank (MDB) lending, a longer-term task that is of high strategic importance to principals. Consistent with the argument, I show that staff-led ratings of countries' institutional environments at four MDBs overwhelm measures of donor strategic interest in explaining lending outcomes. The ratings are also consistently and significantly related to other non-lending outcomes in replicating many prior studies. Overall, agents' formal rules, which are guided by their normative interests, enable multilateral aid to be less captured by powerful countries' strategic interests. The latter are real but are more marginal than the plethora of studies advancing them in elite journals suggests. [Draft Paper]