Between Export Promotion and Poverty Reduction Jan-Henrik Petermann Between Export Promotion and Poverty Reduction The Foreign Economic Policy of Untying Offi cial Development Assistance Jan-Henrik Petermann Lahstedt, Germany Dissertation Universität Hamburg, 2012 ISBN 978-3-658-00047-9 ISBN 978-3-658-00048-6 (eBook) DOI 10.1007/978-3-658-00048-6 Th e Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de. Library of Congress Control Number: 2012955242 Springer VS © Springer Fachmedien Wiesbaden 2013 Th is work is subject to copyright. 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Springer DE is part of Springer Science+Business Media. www.springer-vs.de Table of Contents Figures and Tables ............................................................................................. 13 Abbreviations and Acronyms ............................................................................. 18 Preface ................................................................................................................ 25 1 Introduction ....................................................................................... 29 Part I Tied and Untied Development Assistance: Economic, Political and Legal Dimensions ............................... 53 2 The Tying of Aid as a Contemporary Phenomenon in Development Economics and Policy: Some Key Definitions and Stylised Facts ......................................... 53 2.1 Terminological and Conceptual Issues: on the Nature and Purpose of Tied and Untied Aid ..................... 53 2.1.1 Categories and Modalities of Official Aid Flows: a Brief Discussion of Major Analytical Concepts in International Development Finance ................................ 54 2.2 What Is Aid Tying? Outlining Donors’ Strategies between Domestic Export Promotion and International Poverty Reduction ........................................... 58 2.2.1 Forms of Tying: the Composition of National Aid Budgets ......................................................................... 58 2.2.2 Motivations of Tying: Economic Calculation and Political Interest ............................................................ 63 2.3 Initial Findings and Descriptive Trends: the Aggregate Evolution of Bilateral Untying Behaviour in OECD Countries since the Late 1970s .................................... 66 2.4 Philosophical and Methodological Foundations: Problematising the Contested Subject-matter of International Aid and Trade Relations ..................................... 75 6 Table of Contents(cid:561) 2.4.1 Ideas, Norms and Interests in Global Development Policy: a Framework of Ontological and Epistemological Cross-combinations ............................................................. 75 2.4.2 Metatheoretical Assumptions: Taking the Multidisciplinary Character of Modern Development Studies Seriously ......................... 82 2.5 Summary ...................................................................................... 85 3 Causes and Consequences of Aid Tying: a Survey of Theoretical Arguments and Empirical Results from Institutional Economics, Foreign Policy Analysis and Development Theory .................................................................. 89 3.1 The Allocative View: Determinants of National Tying Behaviour in Domestic Political Systems ......................... 89 3.1.1 Development Policy as a Struggle for Influence among Rival Interest Groups: the Role of Domestic Stakeholders in Shaping Allocative Decision-making ........ 90 3.1.1.1 Competing Interests among Strategic Groups: Debating the Particular Preferences of Voters, Lobbies, Bureaucrats and Politicians ............ 90 3.1.1.2 Competing Interests within the Aid Bureaucracy: on the Significance of Agenda-setting Powers and Principal-agent Relationships ................................. 94 3.1.2 Development Policy as Foreign Policy: Strategic Interests, Commercial Incentives and the Impact of Civilian Power ........................................ 97 3.1.2.1 Rationalist-Materialist Explanations of International Aid Relations: Behavioural Hypotheses for ‘Power States’ and ‘Trading States’ ......................... 98 3.1.2.2 Ideational Explanations of International Aid Relations: ‘Civilian States’ and the Externalisation of Norm-based Political Identities ............................... 101 3.2 The Distributive View: Reasons for and against Untying Bilateral Aid ................................................................ 104 3.2.1 Distorting Effects of Tied Aid in Recipient Countries: a Critical Appraisal of Recent Research in the Field of Aid-related Procurement ............................................... 105 3.2.1.1 Quantitative Aspects: Increased Prices, Reduced Quantities and the Ambiguities of Estimating Net Changes in National Welfare .......... 105 Table of Contents 7 3.2.1.2 Qualitative Aspects: a Bias towards Capital Intensity, Developmental Inefficiency and External Dependence ............................................ 110 3.2.2 Direct, Indirect and ‘Feedback’ Effects of Tied Aid on the Economic and Political Situation of Donor Countries ............................................................ 113 3.2.2.1 Short-term Aspects: Limited Gains for Individual Companies and Industrial Sectors ............................... 113 3.2.2.2 Long-term Aspects: International Competitiveness and Political Patronage ................................................ 115 3.3 Summary .................................................................................... 118 4 Theoretical Framework: Contending Approaches to the Study of Bilateral Aid Relations in the Post-Cold War International System ........................................................................ 121 4.1 ‘Donor Interest’ Models of Development Assistance: Foreign Aid as an Instrument to Increase the Political Influence and Economic Welfare of Industrialised Countries ......................................................... 122 4.1.1 Modified Neorealism and the Goal of Maximising National Influence in a Context of International Anarchy ............................................................................. 122 4.1.2 Commercial Liberalism and the Goal of Maximising National Welfare in a Context of Economic Interdependence ................................................................ 127 4.2 ‘Recipient Need’ Models of Development Assistance: Foreign Aid as an Instrument to Advance Ideas of Ethical Foreign Policy and ‘Good International Citizenship’ ................ 132 4.2.1 Rational Constructivism and the Goal of Promoting Fundamental Rights in a Context of Structural Instability .......................................................................... 132 4.2.2 Entitlement Theory and the Goal of Combating Extreme Poverty in a Context of Human Need ................. 138 4.3 Summary: Locating Competing Theories with Regard to Their Ontological and Epistemological Claims ..................... 144 8 Table of Contents(cid:561) Part II The Prospects of Untying Aid in the 21st Century: Liberalising National Development Programmes in the US, Canada, France, Japan and the UK ...................... 147 5 Between Systemic Pressures and Domestic Preferences: Explaining the Shifting Aid Allocations of OECD Donors on an Aggregate Level .................................................................... 147 5.1 A Quantitative View on OECD-wide Untying Policies, 1979-2004: Operationalisation, Data Selection and Construction of Hypotheses (Level I) ................................. 148 5.2 A Preliminary Test: How ‘Ethical’ Is the Overall Untying Record of OECD Member States vis-à-vis the Least Developed Countries? ................................................ 167 5.2.1 Regression Analysis (I.I): Predicting Ratios of Untied Aid to LDCs ...................................................... 167 5.2.2 Regression Analysis (I.II): Predicting Volumes of Untied Aid to LDCs ...................................................... 182 5.3 An Extended Sample of Aid Recipients: Do Only the Least Developed Countries Benefit from Policy Shifts Undertaken by OECD Donors? ................................................. 188 5.3.1 Regression Analysis (I.III): Predicting Ratios of Untied Aid to New Regional Powers ............................ 190 5.3.2 Regression Analysis (I.IV): Predicting Volumes of Untied Aid to New Regional Powers ............................ 196 5.4 Complementing the Aggregate Picture from a Qualitative Perspective: Untying Aid and the OECD Debate on the Causes and Consequences of Tied Procurement and Associated Export Financing, 1969-2004 ........................... 202 5.4.1 The OECD’s Leverage over International Developmental Outcomes: Investigating a Transnational Debate on Trade-related Development Aid ....................... 211 5.4.1.1 Issue Definition and Initiation of Reform Proposals ... 212 5.4.1.2 Agenda-setting and Pre-assessment of Policy Aims .... 214 5.4.1.3 Optimisation of Policy Alternatives and Estimation of Consequences ................................. 217 5.4.1.4 Policy Formulation and Programme Design ................ 219 5.4.1.5 Policy Implementation ................................................. 221 5.4.1.6 Policy Evaluation and Reformulation of Original Policy Mandate ......................................... 223 5.4.2 Interpretation of Supplementary Qualitative Results ........ 227 Table of Contents 9 5.5 Complementing the Aggregate Picture from a Quantitative Perspective: To What Extent Have Individual OECD Donors Applied Untying Policies in a Coherent Manner? ..................... 231 5.5.1 An Analysis of Variance of Homogeneous Donor Groups: Small-group Configuration ....................... 234 5.5.2 An Analysis of Variance of Homogeneous Donor Groups: Large-group Configuration ....................... 236 5.6 Summary .................................................................................... 241 6 Between Export Promotion and Poverty Reduction: Understanding the Selective Untying of Aid within the Political and Socioeconomic Contexts of Single OECD Donor Countries .... 245 6.1 National Differences in Procurement Regimes and Aid Debates: the US, Canada, France, Japan and the UK as ‘Crucial Cases’ ...................................................................... 246 6.2 A Quantitative View on Donor-specific Untying Policies, 1979-2004: Prevalence of OECD Conformity versus Emergence of Nationally Distinct Norms and Preferences (Level II) .................................................................................... 257 6.2.1 Regression Analysis (II.I): Predicting Volumes of Untied Aid in the United States .................................... 257 6.2.2 Regression Analysis (II.II): Predicting Volumes of Untied Aid in Canada .................................................... 260 6.2.3 Regression Analysis (II.III): Predicting Volumes of Untied Aid in France ..................................................... 263 6.2.4 Regression Analysis (II.IV): Predicting Volumes of Untied Aid in Japan ...................................................... 266 6.2.5 Regression Analysis (II.V): Predicting Volumes of Untied Aid in the United Kingdom ............................... 269 6.3 A Qualitative View on Donor-specific Untying Policies, 1948-2008: Refining and Deepening the Initial Hypotheses for Domestic Inquiry.................................................................. 272 6.4 Why are US, Canadian, French, Japanese and UK Untying Policies Different? The Domestic Sources and Strategic Transformations of Bilateral Aid and Trade Relations with the Less Developed World ................................................. 282 6.4.1 The United States: Still a ‘Cold Warrior with Economic Interests’? ......................................................... 282 6.4.1.1 Historical Peculiarities and Substantive Evolution of US Foreign Aid and Trade Relations ...................... 282 10 Table of Contents(cid:561) 6.4.1.2 Institutional Context, Administrative Structures and the Aid Policy-making System ............................. 293 6.4.1.3 Procedural Coordination and Implementation of Trade-related Aid Policies ....................................... 300 6.4.2 Canada: from ‘Aid Paradoxes’ to Revamped Liberal Internationalism ................................................................. 305 6.4.2.1 Historical Peculiarities and Substantive Evolution of Canada’s Foreign Aid and Trade Relations ............. 305 6.4.2.2 Institutional Context, Administrative Structures and the Aid Policy-making System ............................. 311 6.4.2.3 Procedural Coordination and Implementation of Trade-related Aid Policies ....................................... 314 6.4.3 France: Putting Development at the Service of ‘Priority Solidarity Zones’ ............................................ 317 6.4.3.1 Historical Peculiarities and Substantive Evolution of France’s Foreign Aid and Trade Relations .............. 317 6.4.3.2 Institutional Context, Administrative Structures and the Aid Policy-making System ............................. 324 6.4.3.3 Procedural Coordination and Implementation of Trade-related Aid Policies ....................................... 330 6.4.4 Japan: a Power in Trade and Aid, a Power through Trade and Aid .................................................................... 335 6.4.4.1 Historical Peculiarities and Substantive Evolution of Japan’s Foreign Aid and Trade Relations ................ 335 6.4.4.2 Institutional Context, Administrative Structures and the Aid Policy-making System ............................. 344 6.4.4.3 Procedural Coordination and Implementation of Trade-related Aid Policies ....................................... 353 6.4.5 The United Kingdom: Global Poverty Reduction and Enhanced Aid Efficiency as Core Elements of ‘Good International Citizenship’ .................................. 357 6.4.5.1 Historical Peculiarities and Substantive Evolution of UK Foreign Aid and Trade Relations ...................... 357 6.4.5.2 Institutional Context, Administrative Structures and the Aid Policy-making System ............................. 366 6.4.5.3 Procedural Coordination and Implementation of Trade-related Aid Policies ....................................... 372 6.5 Summary .................................................................................... 376