Abstract: "This paper looks at interactions between foreign development aid, economic reform and public sector fiscal behaviour. It proposes a model of the public sector fiscal response to aid inflows, which allows for changes
in structural relationships due to an exogenously imposed program of economic reform. This model is applied to 1960-97 time series data for the Philippines, which embarked on an IMF- and World Bank-funded liberalisation program in 1980. Estimates of structural and reduced-form equations paint a very dismal picture of the effectiveness of foreign aid in general and liberalisation in particular in the Philippines. Both bilateral and multilateral aid inflows, and the presence of an economic reform program,
are associated with decreases in public fixed capital expenditure, decreases in taxation and other recurrent revenue and decreases in public sector saving. Multilateral aid also appears to be highly fungible." By
Mark McGillivray, May 2002. (PDF, 34 pages.)