February, 2015

Foreign Aid and the Culture of Contracting

  • Christopher Coyne

    Associate Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Claudia Williamson

    Associate Professor of Economics, Mississippi State University
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The authors analyze the relationship between foreign aid and the “culture of contracting.” Contracting culture refers to cultural characteristics — trust, respect, level of self-determination, and level of obedience — which allow for impersonal exchange. Theoretically, aid may affect the culture of contracting for better or worse. The authors empirically analyze this possibility and find that aid generates negative effects on the culture of contracting. The less aid a country receives, the more likely it is to possess a stronger contracting culture. The authors view our results as identifying another potential unintended consequence of foreign intervention where aid undermines development potential instead of facilitating it.

Find the article at Palgrave Journals.