“Her Majesty’s Aid: Imperial Subsidies and State Building in the Late British Empire.”

Abstract: Principal-agent theory suggests that the effectiveness of foreign aid improves when the preferences of donors and recipients are aligned, and when aid administrators have strong incentives to work toward achieving the mission’s goals. I examine both predictions by studying the impact of the Colonial Development and Welfare Fund–the precursor of modern-day foreign aid–on state building in British African colonies. Drawing from originally collected data and archival research, I show that imperial aid was effective in expanding local taxation: a one-standard deviation increase in imperial aid expanded local tax revenue by eleven percentage points. I then show that the positive effect of imperial aid on local capacity resulted from the replacement of patronage appointees for career-oriented civil servants who responded to performance-based promotion rules. The analysis of the Colonial Development and Welfare program provides valuable insights into the limitations and potential of foreign aid in supporting state-building efforts in the Global South.