The political and economic effect of international development agencies on developing countries

Abstract

The post-World War II era is characterized by the institutionalization of international economic interactions, which has led to increases in trade and capital transactions between countries. One of the major phenomena during this era is the proliferation of International Development Agencies (IDAs). IDAs provide loans and grants to developing countries to advance economic prosperity. They also play an active role in defining development policies and researches in the globalized economy. This dissertation analyzes the direct and indirect effect of IDA loans on state behavior. IDAs have financial and institutional capability to influence political and economic situations of developing countries. This dissertation explores the effect of IDAs loans on state behavior by focusing on three important security and economic issues; interstate and intrastate conflict, and private capital inflow. Even if developing countries desperately need capital to build infrastructure and other large-scale investment, they have to balance this economic interest against the potential cost of foreign capital on their autonomy. This is especially true when economic and security interest come to a crossroad. IDAs influence developing countries to adopt pacifist policies by altering the opportunity cost of aggressive state behaviors, improving access and availability of information, as well as promoting the economic conditions of developing countries. Thus, countries that receives a higher level of IDA loans are less likely to engage in interstate or intrastate wars. Furthermore, strong ties with IDAs also help developing countries attract private financiers. IDAs promote private capital inflow by improving the quality of information in the international market and promoting the economic prospect of the countries. These theories have been tested using cross-sectional time series data. Understanding political and economic effects of IDAs on developing country adds a new perspective to the literature on economic dependence and state behavior. Unlike other forms of capital flow, the institutional and financial characteristics of IDAs provide a new dimension to analyze how state behavior changes based on their position in the global economy.