Power in the world’s preeminent international financial institutions—the World Bank and the International Monetary Fund—resides in their Executive Boards. How do governments get elected to these international committees? This study quantitatively explores whether wealthy governments provide more foreign aid to poor governments that offer them political support. The focus is on Switzerland, which is elected to the Executive Board of the Bretton Woods Institutions by a group of countries from Central and Western Asia, and Eastern and Southern Europe. Results confirm the hypothesis. Implications for governance in a multipolar world are discussed.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
The literature is vast. References that have particularly influenced this study include: Bearce and Tirone (2010), Bermeo (2008), Biglaiser and DeRouen (2010), Broz and Hawes (2006), Burnside and Dollar (2000), Bueno de Mesquita and Smith (2007), Dreher et al. (2009, 2010), Dunning (2004), Easterly (2006), Hawkins et al. (2006), Isopi and Mattesini (2010), Kilby (2006, 2009, 2011), Kuziemko and Werker (2006), Lancaster (2008), Marchesi and Missale (2004), McKeown (2010), Milner and Tingley (2010), Moser and Sturm (2011), Mosley et al. (1991), Oatley and Yackee (2004), and Schneider and Tobin (2010). For work on small donors, see Neumayer (2003a, b).
I am grateful to conference participants Peter Bernholz and Jan-Egbert Sturm for elaborating on the importance of Swiss domestic politics surrounding this issue, which received extensive coverage in the Swiss media.
Economic weight is not straightforward to measure. In 2008, the IMF made their “quota” formula public but not the weights and measurements for all of the specific components. See: http://www.imf.org/external/np/exr/ib/2008/040108.htm. For a recent study of the impact of quotas on foreign reserves, see Joyce and Razo-Garcia (2011).
See Mikesell (1994: 22). As the Soviet Union never joined, this did not quite work out.
See Strand and Rapkin (2005) for an interesting discussion.
These numbers have grown over time and are subject to change.
Considering that most emerging market countries are under-represented, it may seem strange to see Saudi Arabia among the top vote-holders. This country saw its vote-shares increase dramatically in the petro-boom of the 1970s.
See IMF (various years).
Studies of the importance of winning Directorships on the Executive Boards of the BWIs include Woods and Lombardi (2006), Momani (2008), and Kaja and Werker (2010). For a study of the dispersion of vote-shares—and thus loss of accountability—on the Executive Boards, see Vaubel (1986, 1996). On the question of accountability and the new transparency, see Weaver (2009, 2010). For a comprehensive review of the effectiveness of the IMF, see Conway (2006).
Montenegro split from Serbia in 2006 and joined the Netherland’s BWI bloc in the 2008 elections. Serbia stayed with the Swiss. Below, I mostly refer to “Serbia and Montenegro” as simply “Serbia.” Note that in 2005, Swiss aid to Serbia and Montenegro was about US$48 million. In 2006, when the country split, Swiss aid shot up to US$99 million for Serbia, but was only US$1.4 million for Montenegro. In 2007, aid to Serbia returned to US$47 million, while Montenegro’s aid dropped to less than US$300,000. Considering that Montenegro accounts for nearly 10% of the population of Serbia, this is hardly an even split of the money coming from Switzerland. And it is not obvious which of the two countries has a higher level of development in 2006 (according to real and purchasing power parity measures). Interestingly, compared to the US$300,000 in aid from Switzerland, the Netherlands provided about one million in aid to Montenegro in 2007.
For the log of aid, I deal with zeros (and hence the undefined log of 0) by adding a small constant (one) so that I can keep the zero-observations (see Ball and Johnson 1996, Fleck and Kilby 2006b, Alesina and Dollar 2000, Bandyopadhyay and Wall 2007, Boschini and Olofsgård 2007, Kuziemko and Werker 2006). Fleck and Kilby (2010: 186, fn3) explain that there is not universal agreement on this. Other approaches include estimating a tobit model (e.g., Alesina and Dollar 2000), estimating a Heckman selection model (e.g., Drury et al. 2005), and estimating other two part models (Berthélemy and Tichit 2004, Fleck and Kilby 2006a, Kilby 2006, Neumayer 2003c).
I consider only independent regimes, using the criteria of Cheibub et al. (2010). Countries that are not covered by the DAC are dropped from the analysis. The countries covered by the DAC that are not reported to receive Swiss aid during 1990–2008 are: Antigua and Barbuda, Bahamas, Bahrain, Brunei Darussalam, Guyana, Kiribati, Kuwait, Nauru, Palau, Qatar, Saudi Arabia, Solomon Islands, St. Kitts and Nevis, St. Lucia, Suriname, Tonga, Tuvalu, and United Arab Emirates.
The picture is similar when Poland is included by raising the income threshold to US$6,500: average aid to non-members averages US$6.7 million, while aid to Swiss-bloc members averages US$11.3 million.
Following the United States, Japan, Germany, United Kingdom, France, Italy, Canada, Spain, Korea, Australia, Netherlands, and Sweden.
The currencies throughout the article are measured in constant 2000 US$, unless otherwise noted.
I am grateful to Christopher Kilby for this suggestion.
Some models do not converge using indicators for every separate year. Thus, I include years together in groups of four to create a series of indicators. This also addresses the incidental parameters problem. I do the same for the linear models below. I am grateful to Jamus Lim for this suggestion. On the question of aid volatility over time, see Lensink and Morrissey (2000) and Desai and Kharas (2010).
As Fleck and Kilby (2010: 186 fn3) again explain, there is “some but not universal agreement on the appropriate econometric specification.” Trumbull and Wall (1994) advocate the country fixed-effects approach, though this is problematic when dealing with time invariant characteristics of countries.
A related possibility is that Switzerland may have increased its foreign aid for all countries that joined the BWIs in the 1990s. To test this, I construct an additional indicator-variable coded 1 for all country-years that joined with Switzerland in 1992 or subsequently. Note that Post-Communism and post-1992 BWI membership cannot be included together due to multicolinearity. When I use the post-1992 variable instead of the Post-Communist indicator, the results for the Swiss-bloc variable hold qualitatively. These results are available on request.
The threshold is obviously arbitrary, and the results do not depend on this.
See, for example, the New York Times article, “Swiss Ban Building of Minarets on Mosques” http://www.nytimes.com/2009/11/30/world/europe/30swiss.html. For a study of the interaction of immigration and foreign aid flows, see Bermeo and LeBlang (2010).
I am grateful to Ngaire Woods for raising this question.
In terms of nominal GDP, the Netherlands is the next larger Western European economy after Switzerland, and Belgium is the next smaller economy. According to the IMF World Economic Outlook Database (April 2010), in 2009, the nominal GDP in current US$ was estimated to be nearly US$800 billion for the Netherlands, nearly US$500 billion for Switzerland, and about US$470 billion for Belgium.
The actual sum of aid to the Swiss-bloc in 2008 was US$94 million (12% of total Swiss ODA, US$758 million). Part of this amount was due to numerous other factors—and part, indeed, because of their membership in the Swiss-bloc.
On the effectiveness of representation, it is noteworthy that the Swiss maintain their Directors for only a few years at a time. At the IMF, for example, from 1993 to 2008 there were four different Swiss Directors. This contrasts with Directors with many years of experience, like Iran’s highly respected Abbas Mirakhor (1992–2008).
Bern, Switzerland, 17 November 2004. See http://www.evb.ch/en/p25003203.html.
The Memorandum of Understanding was signed 3 September 2010. See the Swissinfo.ch article, “Kazakhstan joins Swiss IMF constituency” http://www.swissinfo.ch/eng/business/Kazakhstan_joins_Swiss_IMF_constituency.html?cid=28267148.
Alesina, A., & Dollar, D. (2000). Who gives aid to whom and why? Journal of Economic Growth, 5(1), 33–63.
Ball, R., & Johnson, C. (1996). Political, economic, and humanitarian motivations for PL 480 food aid: evidence from Africa. Economic Development and Cultural Change, 44(3), 515–537.
Bandyopadhyay, S., & Wall, H. J. (2007). The determinants of aid in the post-Cold War era. In S. Lahiri (Ed.), Theory and practice of foreign aid (pp. 387–402). Amsterdam: Elsevier.
Bearce, D. H., & Tirone, D. C. (2010). Foreign aid effectiveness and the strategic goals of donor governments. Journal of Politics, 72(3), 837–851.
Beattie A. (2010). IMF governance turns into giant sudoku puzzle. Financial Times September 26. Available: http://cachef.ft.com/cms/s/0/99505ce2-c986-11df-b3d6-00144feab49a.html#axzz1EKCfxO8O.
Bermeo, S. B. (2008). Foreign aid, foreign policy, and strategic development. Dissertation: Princeton University.
Bermeo, S. B., (2010). Development and Strategy: Aid Allocation in an Interdependent World. Available at SSRN: http://ssrn.com/abstract=1681104.
Bermeo, S. B., LeBlang D. (2010). Foreign Interests: Immigration and the Political Economy of Foreign Aid Allocation. Duke University Ms. Available: http://fds.duke.edu/db?attachment-34--12483-view-1200
Bernholz, P. (1985). International game of power. Berlin: Mouton.
Berthélemy, J.-C., & Tichit, A. (2004). Bilateral donor’s aid allocation decisions: a three-dimensional panel analysis. International Review of Economics and Finance, 13, 253–274.
Biglaiser, G., & DeRouen, K. (2010). The effects of IMF programs on U.S. foreign direct investment in the developing world. Review of International Organizations, 5(1), 73–95.
Boughton, J. M. (2001). Silent revolution: The international monetary fund, 1979–1989. Washington, DC: IMF.
Boschini, A., & Olofsgård, A. (2007). Foreign aid: an instrument for fighting poverty or communism? Journal of Development Studies, 43(4), 622–648.
Broz, J.L., & Hawes, M.B. (2006). US domestic politics and international monetary fund policy. In: D. Hawkins, D.A. Lake, D. Nielson, & M.J. Tierney (Eds.), Delegation and agency in international organizations, (pp. 77–106) Cambridge University Press
Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. The American Economic Review, 90(4), 847–868.
Bueno de Mesquita, B., & Smith, A. (2007). Foreign aid and policy concessions. Journal of Conflict Resolution, 51(2), 251–284.
Buira, A. (2005). The Bretton Woods institutions: Governance without legitimacy? In A. Buira (Ed.), Reforming the Governance of the IMF and the World Bank (pp. 7–44). London: Anthem Press.
Cheibub, J. A., Gandhi, J., & Vreeland, J. R. (2010). Democracy and dictatorship revisited. Public Choice, 143(1–2), 67–101.
Conway, P. (2006). The international monetary fund in a time of crisis: A review of Stanley Fischer’s “IMF essays from a time of crisis: The international financial system, stabilization, and development. Journal of Economic Literature, 44(1), 115–144.
Desai, R. M., & Kharas, H. (2010). The determinants of aid volatility. New Orleans, LA: Paper presented at the Annual International Studies Association Conference, February 17-20.
Desai, R.M., Vreeland, J.R. (2011). Global governance in a Multipolar World: The case for regional monetary funds. International Studies Review 13(1), 109–121.
Dollar, D., & Svensson, J. (2000). What explains the success or failure of structural adjustment programs. Economic Journal, 110(466), 894–917.
Dreher, A., Sturm, J.-E., & Vreeland, J. R. (2009). Development aid and international politics: Does membership on the UN security council influence World Bank decisions? Journal of Development Economics, 88(1), 1–18.
Dreher, A., Klasen, S., Vreeland, J.R., & Werker, E. (2010). The costs of favoritism: Is politically-driven aid less effective? CESifo Working Paper Series 2993, CESifo Group Munich.
Drury, A., Cooper, R. S. O., Olson, R. S., & Van Belle, D. A. (2005). The politics of humanitarian aid: U.S. foreign disaster assistance, 1964–1995. Journal of Politics, 67(2), 454–473.
Dunning, T. (2004). Conditioning the effects of aid: Cold war politics, donor credibility, and democracy in Africa. International Organization, 58(2), 409–423.
Easterly, W. (2006). The white man’s burden: Why the west’s efforts to aid the rest have done so much ill and so little good. New York: The Penguin Press.
Fearon, J., & Laitin, D. (2003). Ethnicity, insurgency, and civil war. American Political Science Review, 97(1), 75–90.
Findley, M. G., Hawkins, D., Hicks, R. L., Nielson, D. L., Parks, B. C., Powers, R. M., . . . S. Wilson (2009). AidData: Tracking development finance. Washington, DC: Paper presented at the PLAID data vetting workshop. September 2009.
Fleck, R. K., & Kilby, C. (2006a). How do political changes influence U.S. bilateral aid allocations? Evidence from panel data. Review of Development Economics, 10(2), 210–223.
Fleck, R. K., & Kilby, C. (2006b). World Bank independence: a model and statistical analysis of U.S. influence. Review of Development Economics, 10(2), 224–240.
Fleck, R. K., & Kilby, C. (2010). Changing aid regimes? U.S. foreign aid from the cold war to the war on terror. Journal of Development Economics, 91(2), 185–197.
Gandhi, J. (2008). Political institutions under dictatorship. New York: Cambridge University Press.
Hawkins, D., Lake, D. A., Nielson, D., & Tierney, M. J. (Eds.). (2006). Delegation and agency in international organizations. New York: Cambridge University Press.
IMF. Various years. IMF Annual Report. Washington, DC: International Monetary Fund.
Isopi, A., & Mattesini, F. (2010). Aid and corruption: Do donors use development assistance to provide the “Right” incentives? Oxford: Paper presented at the AidData Conference, University College. March 22–25, 2010.
Joyce. J., Razo-Garcia, R. (2011). International reserves and IMF Quotas: Is there a link? Review of International Organizations 6.
Kaja, A., & Werker, E. (2010). Corporate governance at the World Bank and the dilemma of global governance. World Bank Economic Review, 24(2), 171–198.
Kilby, C. (2006). Donor influence in multilateral development banks: The case of the Asian development bank. Review of International Organizations, 1(2), 173–95.
Kilby, C. (2009). The political economy of conditionality: An empirical analysis of World Bank loan disbursements. Journal of Development Economics, 89(1), 51–61.
Kilby C. (2011). Informal Influence in the Asian Development Bank. Review of International Organizations 6.
Kuziemko, I., & Werker, E. (2006). How much is a seat on the Security Council worth? Foreign aid and bribery at the United Nations. Journal of Political Economy, 114(5), 905–930.
Lancaster, C. J. (2008). George Bush’s foreign aid: Transformation or chaos? Washington, DC: Center for Global Development.
Lensink, R., & Morrissey, O. (2000). Aid instability as a measure of uncertainty and the positive impact of aid on growth. Journal of Development Studies, 36, 31–49.
Marchesi S., & Missale A. (2004). What Does Motivate Lending and Aid to the HIPCs? Ms.
McKeown, T. J. (2010). How U.S. decision-makers assessed their control of multilateral organizations, 1957–1982. Review of International Organizations, 4(3), 269–291.
Mikesell, R. F. (1994). The Bretton Woods Debates. Essays in International Finance, vol. 192. Princeton, NJ: International Finance Section, Department of Economics, Princeton University.
Milner, H., & Tingley, D. (2010). The political economy of U.S. foreign aid: American legislators and the domestic politics of aid. Economics and Politics, 22(2), 200–232.
Momani, B. (2008). Getting a seat at the IMF executive board table: strategic, economic, or bureaucratic politics? San Francisco, CA: Paper Presented at the Annual Meeting of the ISA.
Morgenthau, H. (1962). A political theory of foreign aid. American Political Science Review, 56, 301–309.
Moser C, Sturm J-E. (2011). Explaining IMF Lending Decisions after the Cold War. Review of International Organizations 6.
Mosley, P., Harrigan, J., & Toye, J. (1991). Aid and power: The World Bank and policy-based lending volume 2, case studies. New York: Routledge.
Neumayer, E. (2003a). The pattern of aid giving: The impact of good governance on development assistance. London: Routledge.
Neumayer, E. (2003b). Do human rights matter in bilateral aid allocation? A quantitative analysis of 21 donor countries. Social Science Quarterly, 84(3), 650–666.
Neumayer, E. (2003c). The determinants of aid allocation by regional multilateral development banks and United Nations agencies. International Studies Quarterly, 47(1), 101–122.
Oatley, T., & Yackee, J. (2004). American interests and IMF lending. International Politics, 41(3), 415–429.
Rapkin, D. P., & Strand, J. R. (2003). Is East Asia Under-Represented in the International Monetary Fund? International Relations of the Asia Pacific, 3(1), 1–28.
Rapkin, D. P., & Strand, J. R. (2005). Developing country representation and governance of the international monetary fund. World Development, 33(12), 1993–2011.
Rapkin, D. P., & Strand, J. R. (2006). Reforming the IMF’s weighted voting system. The World Economy, 29(3), 305–324.
Schneider C. J., & Tobin J. L. (2010). Interest Coalitions and Multilateral Aid: Is the EU Bad for Africa? Paper presented at the 3rd Annual Conference on the Political Economy of International Organizations, Georgetown University.
Stone, R. W. (2011). Controlling institutions: International organizations and the global economy. New York: Cambridge University Press.
Strand, J. R., & Rapkin, D. P. (2005). Regionalizing multilateralism: Estimating the power of potential regional voting blocs in the IMF. International Interactions, 31(1), 15–54.
Vaubel, R. (1986). A public choice approach to international organization. Public Choice, 51(1), 39–57.
Vaubel, R. (1996). Bureaucracy at the IMF and the World Bank: A comparison of the evidence. The World Economy, 19(2), 185–210.
Weaver C, (2009). The political paradox of IO performance: The curious case of the international monetary fund. APSA 2009 Toronto Meeting Paper.
Weaver, C. (2010). The politics of performance evaluation: Independent evaluation at the international monetary fund. Review of International Organizations, 5(3), 365–385.
Woods, N. (2005). Making the IMF and the World Bank more accountable. In A. Buira (Ed.), Reforming the governance of the IMF and the World Bank (pp. 149–170). London: Anthem Press.
Woods, N., & Lombardi, D. (2006). Uneven patterns of governance: how developing countries are represented in the IMF. Review of International Political Economy, 13(3), 480–515.
World Bank. (2010a). World development indicators. Washington, DC: The World Bank.
World Bank. (2010b). World Bank Annual Report. Washington, DC: The World Bank.
I thank the following people who offered suggestions: Peter Bernholz, Marc Busch, Thane Clare, Raphael Cohen, Raj Desai, Jeff Donnithorne, Axel Dreher, Martin Gassebner, Nikhil Kalyanpur, Christopher Kilby, Michael Lamla, Jamus Lim, Rodney Ludema, Anna Maria Mayda, Ryan Powers, Dennis Quinn, Julia Shvets, Jan-Egbert Sturm, Michael Tierney, Jennifer Tobin, Erik Voeten, Jürg Vollenweider, Catherine Weaver, Thomas Willett, Garth Willis, Sven Wilson, Ngaire Woods, and, especially, the two anonymous referees. I am particularly indebted to Jessica Lawson, who offered detailed comments on the style and substance. I am also grateful to participants at the following conferences: The AidData Conference (University College, Oxford, March 22–25, 2010), The Mortara Center Research Workshop Series on the International Politics of the Financial Crisis (Georgetown University, May 6–7, 2010), The Egon Sohmen Memorial Conference (Tübingen, Germany, June 10–13, 2010), and The Silvaplana Workshop on Political Economy (Hotel Schweizerhof, Pontresina, Switzerland, July 24–28, 2010). This study was originally drafted for the PLAID Data Quality Workshop (Stimson Center, Washington, DC, September 17–18, 2009).
About this article
Cite this article
Vreeland, J.R. Foreign aid and global governance: Buying Bretton Woods – the Swiss-bloc case. Rev Int Organ 6, 369–391 (2011). https://doi.org/10.1007/s11558-011-9111-z
- Foreign aid
- World Bank
- Central Asia
- Global governance