COMPLEMENTARY MEASURES TO FOREIGN AID: TAIWAN AND THE PRC UNDER DIPLOMATIC RIVALRY

Authors

  • Richard C. Lin

    1. Department of Economics, Soochow University, 56 Kweiyang St. Sect. 1, Taipei, Taiwan, 100 ROC. E-mail lrch0917@mail2.scu.edu.tw
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      This is a revised ersion of a paper presented at the Western Economic Association International 73rd annual conference, Lake Tahoe, June 30, 1998, in a session organized by Jack Hou, California State University, Long Beach. The author is grateful for the comments and suggestions made by Suzan Babcock, Jack Hou, and Anonymous referees.


Abstract

The competition on foreign aid, as a means for securing foreign policy and other benefits by the donor, can lead to diplomatic rivalry. This article utilizes a game theoretic model to analyze the existing rivalry for foreign aid and international status between Taiwan and the People's Republic of China. Similar to the role of political contributions in the public choice theory, foreign aid is taken a means of international lobbying, to realize the donor's objective. Research results, based on the policy effect consideration, indicates that the equilibrium aid policy, which is endogenously determined, renders an inability on the part of the donors, which affects the recipient's optimal foreign policy. How does a donor obtain favorable outcomes when such rivalry exists? Strengthening diplomatic endeavors to realize the access effect has been proved an effective method. Analytical results have shown that this method not only complements aid rivalry but also increases the welfare of the donor.

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