PDRI-DevLab Research-to-Policy Student Initiative: Foreign Aid and the Performance of Bureaucrats

The policy brief was prepared by Kyilah Terry (University of Pennsylvania) in collaboration with the study’s author, Maria Nagawa. It highlights findings from the working paper “Foreign Aid and the Performance of Bureaucrats,” which examines how project-based foreign aid reshapes bureaucratic incentives, effort allocation, and institutional performance, drawing on evidence from government ministries in Uganda.

Key Takeaways

• Foreign aid improves performance on donor-funded tasks but diverts effort from core government responsibilities: Bureaucrats assigned to aid-funded projects increased effort on those activities while reducing time spent on regular ministry duties.
• Donor projects create stronger incentives than standard government roles: Higher pay supplements, clearer performance expectations, and closer monitoring encouraged bureaucrats to prioritize donor-supported work.
• Aid can weaken coordination within government ministries: Parallel project structures created fragmentation, reducing information sharing and collaboration between donor-funded and regular government units.
• Foreign aid may increase inequality within bureaucracies: Staff working on donor projects gained access to better compensation, training, and career opportunities compared to colleagues performing core public service functions.
• Short-term performance gains may come at the cost of long-term state capacity: While aid improved outcomes in specific projects, it risked undermining broader institutional effectiveness.

Introduction

Foreign aid is a critical source of funding for public service delivery in many low- and middle-income countries. Donors often implement programs through special project units embedded within government ministries, with the goal of improving service delivery and accountability. However, these projects may unintentionally alter bureaucratic incentives, affecting how government institutions function overall.

This brief summarizes evidence on how donor-funded projects influence bureaucratic behavior, performance, and institutional capacity.

The Challenge

Foreign aid programs are designed to strengthen government performance, but unintended consequences can arise if:

• donor projects operate outside standard government structures,
• bureaucrats face stronger incentives in aid-funded roles than in core public service positions,
• and parallel systems weaken coordination, equity, and long-term institutional development.

These dynamics raise important questions about whether foreign aid strengthens or weakens state capacity over time.

Approach

The study examines bureaucratic behavior within Ugandan government ministries where donor-funded projects operate alongside standard government functions. It analyzes:

• how bureaucrats allocate time and effort between donor-funded and regular government activities,
• how incentives differ across roles,
• and how these differences affect performance, coordination, and institutional functioning.

Findings

• Effort shifts toward donor-funded work: Bureaucrats increased effort on aid-supported projects while reducing effort on routine government responsibilities.
• Incentives drive performance differences: Donor projects offered higher compensation, clearer performance targets, and stronger monitoring, making them more attractive assignments.
• Coordination challenges emerged: Parallel donor structures weakened communication and collaboration across departments.
• Institutional inequality increased: Unequal access to donor opportunities created disparities within ministries.
• Implications for state capacity: While donor projects improved targeted performance, they risked weakening broader institutional effectiveness.

Policy Implications

• Integrate donor programs into government systems: Align donor initiatives with existing institutional structures to strengthen overall capacity.
• Harmonize incentives across roles: Reduce disparities in compensation and recognition between donor-funded and regular bureaucratic work.
• Strengthen institutional coordination: Ensure donor programs support—not fragment—government systems.
• Focus on long-term institutional development: Design aid programs that build sustainable capacity beyond individual projects.

Acknowledgments

PDRI-DevLab recognizes the contributions of the student author and collaborating researcher in advancing evidence translation for policy audiences. This brief is part of PDRI-DevLab’s broader effort to strengthen research-to-policy communication and expand student opportunities–author collaboration.