Does growth reflect good and bad dictators, or just good and bad statisticians?

By William Easterly

Autocracy (measured on horizontal axis as near zero) and Growth Outcomes (measured on vertical axis), 1960-2008

As a previous post showed, autocracies have high variance of growth outcomes (also illustrated in the graph above). The usual interpretation is that benevolent autocrats cause good outcomes while malevolent autocrats cause bad growth outcomes. Democracy has checks and balances that prevents malevolent people from having too much power to generate bad outcomes, but also restrains the good ones from doing what they want to achieve the great outcomes.

Unless this is completely wrong. Autocracy is only one dimension of society, after all, and is heavily correlated with other dimensions that could cause high dispersion of development outcomes, such as dependence on commodity exports, dependence on agriculture, civil wars, and … BAD STATISTICIANS (?!)

Vertical axis is per capita growth 1960-2008, Horizontal axis is grade on quality of data (Highest grade=4)

Bad statisticians make a lot of measurement mistakes. Average growth over 1960-2008 might have zero mistake ON AVERAGE, but there will randomly be some countries with a string of exaggerated growth rates. Other countries will randomly have a string of underestimated growth rates. So the variance of growth will be higher the worse the data quality – which is exactly what we see in the picture.

Of course, I am not saying China or Singapore or Taiwan have high growth (and Liberia has horrible growth) ONLY because of measurement error. Other indicators confirm the East Asian booms — but are we really sure growth was 6 percent per capita per year, instead of 4 percent per capita per year?
How bad is bad quality data? Alwyn Young at LSE has a fascinating recent paper in which he points out:
although the on-line United Nations National Accounts database provides GDP data in …constant prices for 47 sub-Saharan countries for each year from 1991 to 2004, the UN statistical office which publishes these figures had, as of mid-2006, actually only received data for just under half of these 1410 observations and had, in fact, received no constant price data, whatsoever, on any year for 15 of the countries for which the complete 1991-2004 on-line time series are published.So for 15 African countries, "bad quality data on real GDP growth" really means "NO data on real GDP growth".
Next time you are praising an autocrat for a glorious growth record, remember you may really just be praising an incompetent statistician.

Busy Ballot Year for Africa but Democracy Lags Behind

Too many of the elections remain rigged or deeply flawed. Too many incumbents voted out of office refuse to step down. And, most importantly, too little effort goes into building institutions of democratic governance that would ensure transparency and accountability between elections. Source: CIPE

What does it take to create democratic political institutions in Ethiopia?

“A fundamental aspect of institutional design is how much society chooses to delegate unchecked power to its leaders. If, once elected, a leader cannot be restrained, society runs the risk of a tyranny of the majority, if not the tyranny of a dictator. …Classical political theorists were well aware of the importance of the trade-off between delegation of power to leaders and the need to control them to avoid tyranny.” Philippe Aghion, et.al (Endogenous Political Institutions, nyn.edu, Quarterly Journal of Economic, 2004).


The primary purpose of this article is twofold:


1) To raise various questions for all contending Ethiopian political groups, intellectuals, and scholars to ponder and challenge them to take the concerns of the Ethiopian people seriously in building institutions that outlive the governing body; and


2) To warn the same group that having an election process without a thoughtful, forward-looking political infrastructure in place will result in an ideal Ethiopia remaining simply a dream.


Since 1974, the Ethiopian people have experienced drastic changes due to the nature of governance, which in general exposed them to interethnic conflict, dictatorship, and the often life-threatening hazards of forced immigrant labor. The current government, opposition political groups, and even bystander individuals often cite the past as a cause for their political headaches, but no measurable solutions for building enduring institutions are clearly articulated. There are some who argue that “market economy” is the answer. For instance, Fekadu Bekele asserts:


More or less the situation seems like this, and the Ethiopian people are frustrated by the vulgar nature of the system. They are longing for a system which transforms their lives and make them self-reliant. It is our duty to show the road to true civilization. In this case we have to challenge the neo-liberal economic paradigm which is presented as the only panacea of solving economic and social problems. Over the last 30 years many African countries have been practicing the so-called structural adjustment program of the IMF and the World Bank. None of them could build a dynamic and free economic structure. All countries that have applied this program could not transform the lives of their people. I think this must be a lesson to us. The history of nation building proves that poverty, hunger and underdevelopment cannot be eradicated by market economic instruments, but only through conscious state economic policy. We can eradicate poverty and hunger if we accept this fact and open our mind to new ideas. The experiences of Western Europe after the Second World War, the great efforts of Japan and South Korea are good examples which help us to draw lessons. All these countries could build strong economies not by applying a pure market economic policy but through the combined activities of state intervention and private initiative. (Fekadu Bekele, April 14, 2010, tecolahagos.com)


There are others who do not dismiss the past as a factor for the objective political conditions but assert that using history as a justification for bad behavior is not correct. For example, Sisay Asefa argues, “The magnitude of the economic and political problems of post-1974 Ethiopia cannot be equated with the pre-1974 period of Emperor Haile Selassie. Pre-1974 Ethiopia, in spite of a system of absolute monarchy and a lack of democratic governance, scored some major achievements both domestically and internationally that the current and future generation of Ethiopians should be proud of and take appropriate lessons”(Sisay Asefa. "Developing Democratic Institutions in Ethiopia: The Challenge of Building Enabling Institutions for Economic Growth and Development, [p. 71-72] muse.jhu.edu/journals/northeast_african_studies/.../10.1.asefa01.html).


There are others who have a similar outlook. “In order to build the Ethiopia of our future, we need to be cognizant of our past and current history in order to learn to avoid similar mistakes of our predecessors. We need to use history in a creative manner to solve future problems. We should not be held hostages by our history or put in a straitjacket of history. “Tecola Hagos - (repost, April 14, 2010), http://www.tecolahagos.com/


Before raising those challenging questions, defining some terms is needed:


1. “A political system is one that ensures the maintaining of order and sanity in the society and at the same time makes it possible for some other institutions to also have their grievances and complaints put across in the course of social existence.”


2. Institutions are structures and mechanisms of social order and cooperation governing the behavior of a set of individuals within a given human collectivity. Institutions are identified with a social purpose and permanence, transcending individual human lives and intentions, and with the making and enforcing of rules governing cooperative human behavior. The term "institution" is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organizations of government and public service. As structures and mechanisms of social order among humans, institutions are one of the principal objects of study in the social sciences, including sociology, political science, and economics. Institutions are a central concern for law, the formal mechanism for political rule-making and enforcement” (Wikipedia, the free encyclopedia: en.wikipedia.org/wiki/Political_system).


3. Democracy is a “government by the people; a form of government in which the supreme power is vested in the people and exercised directly by them or by their elected.”(dictionary.reference.com/browse/democracy)


Given the above definitions as a contextual framework, the following are challenging questions that require dialogue in order to arrive at plausible answers beyond political reactions:


· Who ought to define and articulate Ethiopian’s shared national vision?


· What do human rights mean beyond ethnicity and economical status in the context of the objective conditions in Ethiopia?


· Should development and poverty “eradication” come at the expense of human rights?


· How does corruption violate individuals human rights, and is it possible to solve corruption without an independent judiciary system?


· What does it take to create democratic political institutions in Ethiopia given the current regime that does not even uphold its own judicial decision (e.g. the case of Birtukan Mideksa’s visitation rights).


Although the above questions are admittedly loaded, they are crucial to the Ethiopian people in order to resolve their crisis and determine their own destiny. It is understood among Ethiopians that, since the 2005 election in Ethiopia, a lot of articles and opinions by Ethiopians and friend of Ethiopians have flooded the various media. However, all seem to be reactions to the current undemocratic political system. In general, those reactions characterize the current system as follows:


1. Prevalent of corruption and cronyism


2. Controlling the means and ways of production


3. Ethnic monopoly of public institutions and infrastructures, including the media


4. Mistrust of the ruling party by the majority citizens, apparent tension, and conflicts among various groups


5. Politically motivated court system
Thus, it is critical that the Ethiopians at home and in the Diaspora must decide what they want for a nation beyond tribalism or “ethnic ghetto” (“Ethiopia’s Notorious Campus Wars: Causes, Goals, and Impacts,” Jawar Siraj Mohammed, May 15, 2010). Furthermore, political dialogue and creating a transparent and democratic political system should not be left to men alone. The following are necessary to such ends:


1. A court system that is independent – as a third branch of government must be to avoid being instrumental for political harassment, intimidation, and persecution.


2. A free press with the highest professional standards, whose role is to inform (e.g., the case of Awramba Times, Addis Nege, etc, – May 17, 2010, Ethiomedia.com), educate the citizens, and challenge the governing body when it threatens the human rights of its citizens.


3. Public education must address the importance of telling the truth, self respect, the rights and responsibilities of citizenship, and challenging each other with a pen rather than with the barrel of the gun.


4. Dialogue between all political groups to present alternative approaches to deal with differences, either using the South African truth and reconciliation model or other conflict resolution methods.


5. Women’s issues must be addressed simultaneously and not postponed until a given political group comes to power. Women also must take the initiative to articulate their issues and raise their children to think differently in areas of anger management, conflict resolution, self respect, treating women, and how to coexist with those whom they dislike or disagree.


Those who want to take a leadership role in Ethiopian politics must understand that they cannot govern a society without providing emotional, financial and physical safety to all citizens. Furthermore, those who aspire to be leaders must demonstrate by their deeds and words the democratic principles. Additionally they must be cognizant that people without enough food to eat do not have the energy to dialogue or even dream about democracy. When all is argued, debated, and done a transparent and democratic political system must be instituted. In order to monitor such system, it is critical to have independent advocacy institutions in every sector and a think tank agency that will monitor and alert both the Ethiopian citizens and international stake holders.


To conclude, my wish for the Ethiopian citizen is that, for them to have equal opportunity to be educated, be free from poverty, governed by their elected representatives without duress, and be adjudicated by independent and impartial court.


The author can be reached at ltsegaw@gmail.com


References:


1. Toolbox: 17. Political Institution-Building


Political institution development is assistance to build effective, responsive, formal democratic political


www.caii.com/CAIIStaff/Dashboard.../toolbox17.htm


2. Form of government - Wikipedia, the free encyclopedia


Most would say that the United States is a democratic republic while the ... to accept it because


en.wikipedia.org/wiki/Form_of_government


3. Do Ethiopia's politicians mean it on democracy?
Analysis ...


blogs.reuters.com/.../do-ethiopia’s-politicians-mean-it-on-democracy


4. Political Rights In Ethiopia


humanrightsethiopia.com/images/Roundtable.pdf


5. ICL - Ethiopia - Constitution


www.servat.unibe.ch/icl/et00000_.html
6. Veto players: How political institutions work


7. psu.edu [PDF]G Tsebelis - 2002 - books.google.com


8. Comments on the Ethiopian Crisis by Christopher Clapham


http://www.african.cam.ac.uk/people/registry/subjectlist/clapham.html


9. Sisay Asefa. "Developing Democratic Institutions in Ethiopia: The Challenge of Building Enabling Institutions for Economic Growth and Development. ...


muse.jhu.edu/journals/northeast_african_studies/.../10.1.asefa01.html


10. Democracy Definition


Definition of Democracy at Dictionary.com


dictionary.reference.com/browse/democracy

II. Transparency and Corruption

Rule of Law, Transparency and Corruption

Ratification of Critical Legal Norms

1. Ratification of core international human rights conventions. There are seven core human rights conventions currently in force. This indicator assesses whether a country's legal norms with respect to this core area are clearly consistent with international law. Using information from the Office of the United Nations High Commissioner for Human Rights (OHCHR), it assigns a value 0 to 7 for each country in each year based on the number of core conventions ratified. Other aspects of respect for human rights in practice are addressed through the next indicator in this sub-category, as well as through various indicators under the category of "Participation and Human Rights."
2. The presence of international sanctions for human rights violations, At the most basic level, it is important to know whether a country is in gross violation of international legal norms. This indicator is based on information denoting the imposition of sanctions for each year from the records of the UN Security Council.
3. Laws on contracts and property rights are other important areas for which clear legal norms are key. No acceptable measure yet exists for these important aspects of legal norms. The Index this year uses as a proxy the "Property Rights Index" developed as one of the ten sub-components of the Index of Economic Freedom, produced by the Heritage Foundation and Wall Street Journal. The Property Rights Index rates the degree to which a country's laws protect and enforce private property rights

Existence of Independent and Efficient Judicial Systems

1. Judicial Independence is a key aspect of a functioning judiciary and of the rule of law. Several projects are currently underway to code judicial Independence, but none is appropriate for use by the Index at this time.3 The Index this year relies instead on the "rule of law" sub-score from the civil liberties index of Freedom House's Freedom in the World. This is a composite measure that assesses the Independence of the judiciary, civilian control of police, protection from political terror, and equal treatment across various groups. It is based on detailed expert surveys, with low values suggesting poor rule of law and high values, better rule of law.
2. Efficiency of the courts, based on numbers of pre-trial detainees as a percentage of all detainees. Numbers are from statistics compiled by the International Centre for Prison Studies and from official national sources, gathered by our own country researchers.
3. Efficiency of national institutions regarding contract enforcement, based on the number of days it takes to settle a contract dispute. Estimates are drawn from the World Bank's Doing Business study.

Corruption

1. Public sector corruption from the annual "Corruption Perceptions Index" (CPI) of Transparency International and other information on the CPI published by the Internet Center for Corruption Research. The CPI is a composite index based on multiple polls from numerous institutions. In order to give scores for all countries, we also include some additional estimates based on information from the Internet Center. Possible scores range from 0 (high levels of perceived corruption) to 10 (low levels of perceived corruption). The CPI is the current gold standard for measuring nation-state corruption. Although comparisons of the CPI over time are problematic (as discussed further in the descriptive note to this indicator), it is the best measure available at this time.
Who is Responsible

Note: the profile and credential of the regime's officials is hard to find on the official website of the agencies they operate. We believe it is deliberate to conceal from the public from knowing their competence and background to hold important public office. We will do our best to find them, and your cooperation to lead us where we can find them is appreciated. Assefa Kessito (photo) Minster of Justice http://www.mojet.gov.et/index.htm link is broken no accessess
Since 2005

State Minister of Justice

A. Ratification of Critical legal Norm

Council of Minsters
House of Parliament standing Committees

Council of Minsters

State Minsters

Others

B. Independent and Efficient legal system

Parliament standing Committee

Council of Minsters
Hashim Tewfiq see photo Since 2006Semegn Wube Since 2005

Some Background about the three judges of the Federal court presided on kinjit trial is posted on "The other side" a blog http://lewit.blogspot.com/2006/12/in-name-ofjustice.html

Federal Judges

Judge Leul,

Head of Criminal Affairs DepartmentAbdurahim Ahmed

C. Corruption
Cabinet Minster
Parliament standing Committee
State Minsters
Others agencies/Commission
Federal ethics and Anti corruption commission

Advocacy for Ethiopia: The beginning of Transparency and Accountability

Advocacy for Ethiopia (AFE) finally broke the most disabling taboo in Ethiopian governance by instituting accountability on the substance of facts in public forum. AFE established a public forum where people can come and be accountable for their action or inaction.

In the hindsight, Ethio Transparency Watch believes Advocacy Ethiopia made history in Ethiopian governance by setting-up the foundation of transparency and the pillar of independent institution formations. Every well meaning Ethiopian should be grateful and appreciate the individuals who have the insight and the commitment to establish the stage for open public discourse.

There is no wonder the one and only vocal opponents of the forum were none other than the TPLF/EPRDF regime’s cadres and apologist. Transparency is the one and only thing tyranny fears the most, and the one and only thing that free the people of Ethiopia. The sorting-out of who-is-who against or for Ethiopians’ freedom rests on public forums like AFE organized.


AFE broke the secret code that held back Ethiopia as a nation and the people condemned to live under tyranny for centuries. More and frequent forums are badly needed to end the impunity of tyranny soon.

The lack of independent institutions and accountability solely because of tyrannical rulers refusal to allow free expression and assembly, thus the formation of independent institution is the reason for the absence of transparent governance, to persistent poverty and the lack of liberty.

AFE cracked the code, and must continue to lead by example by encouraging more public forums in all sectors (Famine, Human trafficking, Adaption, Corruption, Media, Education, Investment, Civic Society, Health, Environment, Security, and Economic Development to name the few. The organization must encourage advocacy group formation for action in all sectors to make the regime and all accountable.

Ethio-Transparent Governance Watch appreciates Advocacy For Ethiopia and shares its mission. If truth must be told, AFE action is historic; it would not be an exaggerating in our part to say it is the single most important act in the history of Ethiopian governance.

We urge Advocacy for Ethiopia to make one and all political, civic society, community leaders to be accountable for their action and inaction by inviting them in the future forums.

Ethiopian Commodity Market: The Unholy Marriage of ECX and EGTE?

Ethiopian Commodity Exchange (ECX), that was established in April 2008 and Ethiopian Grain Trade Enterprise (EGTE), a government agency that begin trading coffee and oilseed on the exchange floor last year had a marriage of convenient.

Ever the exchange was operational and abandoned its original declared mission of Grain Commodity market reform to become an export commodities collection center armed with government decree, it defied every transparency and independence a free market institution requires.

The Exchange that failed to bring about the real private traders to participate in the exchange floor made a habit of threatening and forcing farmers and traders with government proclamation and decree to force sell their commodity, contrary to its stated mission of free market promotion.

Therefore, the ECX marriage proposal to EGTE was too convenient and too good to be true following the calculated government raid of private coffee traders' warehouses and revoking their license last year. Accordingly, the ECX, backed by the power of the ruling regime and its operatives ended up cornering the export market with EGTE as as its unholy partner.


ECX that boost independence and transparency ended up being another government tool with the majority of high government official seating on the board of Directors, EGTE as a partner and the ruling regime’s business enterprises crowding out the private sector. in essence transparency became a PR stunt for gullible audience.


At the mean time,  EGTE on its official website claims it was “re-established in accordance with Regulation No. 58/92 of the Councils of Ministers and completed merger with Ethiopian Oil Seeds and Pulses Export Corporation".


The Agency that joined the ECX as any trader of coffee commodities was re-established in 2002 and put up its website by an outfit called ITSC Technology Support, located in Bole, Addis Ababa with server in Malaysia, according Network Solution.


What is peculiar about the website that was created on July 2002 and modified on August of 2008, (four months after the ECX was officially opened), it began selling commodities online. What is also troubling is the connection of ITSC and Malaysia. When ECX uses the Ethiopian telecom server, how is it a government agency like EGTE managed by unaccountable private outfit to the public using a server in Malaysian?  


In addition, for a major government agency like EGTE that dominates agriculture commodity trade and export in the country there is no a single responsible person named on its official website. How is it the Exchange overlooked these defecinecy to allow it to dominate commodity trade?


No one is sure the difference between the government’s agencies, the ruling party business and the ‘private traders’. But, one thing seems clear, like many other agencies the ECX and EGTE are fronts for the regime unlike the CEO of the ECX and the Genral Manager of EGTE wants the world to believe.


To illustrate the lack of transparency the official ECX’s website have many deficiencies. It resembles more like a private enterprise owned by individuals than a national commodity exchange. For example, it claims on about us “ECX creates trust and transparency through aggressive market data dissemination to all market actors, through clearly defined rules of trading, warehousing, payments and delivery and business conduct, and through an internal dispute settlement mechanism. ECX provides market integrity at three important levels: the integrity of the product itself, the integrity of the transaction, and the integrity of the market actors”


The above official statement does not equate with what is practiced on the ground by the hand picked "market actors” like EGTE. With its online sells around the world the agency that pride to have its own warehouse, transport… and a budget of over 105 million birr of public fund competing with private traders with impunity says more about ECX motives than to ‘create trust and transparency” as stated.


Since last year, the agency became coffee and various cash crops trader and exporter with multiple and confecting role in the market. It is a market price stabilizer, exporter of cash crops, a seller of grain commodities to institutional buyers, storage operator, transporter etc. The new addition to its service as an online seller of cash commodity to the world does not equate with “integrity of the transaction and market actors” as the ECX claimed. see EGTE website. 


The convenient marriage between ECX and EGTE not only lacks integrity and transparency, but exhibits the prevalence of corruption and cronyism in the part of the ECX, the total breakdown of the market and the vulnerability of the indigenous farmers and traders.


When free market is used and abused by officals who have other motives than the free exchanges of goods and services to the benefit the public it shows the contempt of officials towards the public and how public institutions can be used by corrupt market operatives. Nothing can be more evidence than the only sources of public information than the websites of the ECX and EGTE.


During the establishment of the exchange, the present CEO and founder of ECX Dr. Eleni Z. Gabre-Madhin (then Chief of Party, ECEX Project of Internationa Food Policy Research Iinstitute (IFPRE), made a speech at TED conference on “Africa: the Next Chapter” in Arusha, Tanzania  titled:- On Happiness, Freedom, and Unleashing the Power of the Market. Below are the last three paragraphs of the speech:

“The winds of change are here. At present, there is a great momentum on the part of both the government at the highest level and the private sector, from farmer groups all the way to industrial actors. ECEX is the market for Ethiopia’s new Millennium, which starts in late 2007. The last Parliament of our century opened last October with the President announcing that this initiative is the country’s top economic priority for the next year. The stakes are high, and the returns will be even higher.


Can Ethiopia do it? We believe it can be done. We say Yichalal!, it can be done, following the tradition of our great runner, Haile Gebreselassie. Moreover, ECEX paves the way for a pan-African trading platform. ECEX positions Ethiopia as a regional market player, adding significant value to its $1 billon domestic market, in which Ethiopia is Africa’s second largest maize producer, with total grain production 30 percent higher than South Africa. ECEX enables our farmers to connect to consumers of our pulses and sesame seed in the huge and growing markets of India and China, as well as Europe. If ECEX can capture even 40 percent of the current domestic market and raise commercialization by farmers by just 25 percent, this doubles the value of the domestic market.


By creating meaningful choices and transforming the lives of Ethiopian small farmers, we believe that ECEX is an outstanding value proposition to Ethiopia’s future and that the sky is the limit."

While the speech and the hype were meant to please the donor community to doll more money than anything else, it has no substance to the reality of the market in Ethiopia. As expected, the exchange did not go further than to become an efficient collection warehouse of cash commodity to the regime's liking.


The CEO speech that promised to transform the Grain commodity market turned-out to be an empty promise, because the CEO compromised free market principle by breaking  the rules of transparency to liking of the regime in power. She surrndered to the regime appitit to earn forign exchange by cornering the market than badly needed market reform.


In a positive note, the ECX, for the first time in the country's history introduced the concept of formal trading. If only the government  along the corrupt and privileged traders who tag along with regimes in power gets out of the way, the country would have advanced as a major commodity producers in the region. 


Salvaging the Exchange?


Like establishing the exchange salvaging it requires a political will of the government as well as principled stand and ethics on governance in the part of our intellectuals. In that regard, the regime consistently proven it has no desire to surrender public institutions to independent groups. What we are left with is the CEO doing the right thing, including banning  the government officials and the regime affiliate traders from involving in the exchange affairs beyond regulating. The CEO would do the people and the maraket a big favior to resign.

While opposition political parties are distracted by the chaos created by the ruling regime, it is their duity to demand the independence of the ECX and the resignation of the officers and the CEO.

Amoung the few institutions in the country that have the major stranglehold in the lives of the people of Ethiopia are the ECX and EGTE. As much as political reform is needed for the rights and liberty of the people of Ethiopia market reform should comes on the top of the agenda of any serious opposition political party to free the people from the bondage of economic  oppression by the regime and its affiliates. Among the urgent demands required by the oppositions are: banning all the ruling party businesses from the market, demanding the exchange to be run by independent committee, demanding public disclosure of the assets and monitory interests of all government officials, and the right for Indigenous farmers and traders to form independent associations.

ECX and EGTE can not continue dodgeing the question of transparency by supressing information to escape accountability.

Human Rights Facts (105): The Aid Curse, or the Negative Effect of International Development Aid on Democracy

March 13, 2009

Filip Spagnoli


Via Bill Easterly’s blog, I discovered this paper on the so-called “aid curse“: just as dependence on natural resources has a negative effect on the quality of a country’s governance and democracy (a phenomenon called the resource curse), so has international development aid (or official development aid, ODA), especially in countries which depend heavily on aid (and in which aid represents a large percentage of GDP).

This is surprising, because one of the aims of international development aid is to bolster the quality of governance, directly through aid targeted at this objective, or indirectly on the assumption that better education, health care etc. will ultimately lead to better governance.

It seems now that there is a correlation (and perhaps even a causal link) between high levels of aid and low levels of democracy. The explanation is that foreign aid , like the revenue of natural resources, provides an opportunity for governments and leaders to appropriate funds illegitimately. And, because they benefit from aid, they will try to exclude other groups from power. This obviously destroys democratic institutions or makes it more difficult to establish them.

 Foreign aid also reduces the need for a system of taxation. And without such a system, it’s a lot more difficult to construct a well-functioning government, and it’s less likely that forces for representation take root (historically, the principle of “no taxation without representation” has promoted democracy). When a government doesn’t depend on taxes for its revenues, then it will have less incentives to seek accountability.

These graphs from the paper show how the levels of democracy in countries decrease while the levels of aid (as official development aid – ODA - over GDP) increase:

None of this proves that we should give less aid to developing countries. Probably the opposite is true. What it proves is that aid is more than just sending money. Donors should check what happens to their money, should target the money, and should bypass the “sticky fingers” in government as much as possible. To some extent, donors should also make aid conditional on democratic reform because this reform is the way to avoid aid inefficiency. However, when doing so, they should be careful not to put the cart before the horse: one of the goals of aid is precisely democratization. more...
 
Commentary from TGW:
 
It is abundantly clear by now a country that receives more Foreign Aid is in a worst situation than those who do less. The dependence theory often focuses on the poor, when in actuality the urban élites and the administrators of the funds are the one who depends on Aid and sustain it by all means necessary to maintain their life style.


It is not uncommon to see the industry flourishing in a short span of time and takeing over the basic service of  governments by further expanding in other areas. It is customary government officials with their insider knowledge and connection setting up shop to take advantage of the massive infusion of Aid fund.

The cycle of dependence can not be broken until the élites' dependence on Aid is dealt with, and until they stop perpetuating problems geared on fund raising than problem solving.