Empirical Evidence on the New International Aid Architecture

The Review of International Organizations, 2012

Since the late 1990s a selection on policy approach to aid was advocated such that more aid should be allocated to countries with good policies. A number of donors accepted this recommendation, including the World Bank, but there is little evidence that this has occurred. Donors, including the World Bank, seem no more likely to use policy and governance indicators to determine the amount of aid allocated to particular recipients. This paper argues that donors may exercise selectivity over the aid modality. Specifically, multilateral donors (we consider only) will cede more recipient control over aid by granting more budget support to those recipients with better service delivery systems and spending preferences aligned with the donor. We test this for the EC and IDA over 1997-2007 and find some support. The principal determinant of receiving budget support has been having a PRSP process in place, and this can be considered a good indicator of aligned preferences. Furthermore towards the end of the period (2005-07) there was some increase in the share of countries receiving budget support but then government effectiveness was also a determinant of eligibility, and having a PRSP increased the amount of budget support. Multilateral donors have been more likely to give budget support to countries with aligned spending preferences and better quality systems, even if they have not reallocated the total aid envelope in that way.

2018

Partner country selection is one of the key elements of development policy. It lies at the centre of the development policy decision-making of donor countries and institutions, and plays a significant role in shaping the patterns of official development assistance (ODA) allocation. The existing literature on ODA allocation has either a focus on how it should be (normatively) organised, on which determinants are (ex post) responsible for aid flows by using regression analysis looking for causal relationships, or stands somewhere between them. We argue that there is a gap in the literature in terms of analysing whether the actual flows of ODA reflect donors’ stated intentions in partner country selection. It is the aim of this paper to analyse the partner country selection approaches of selected members of the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) during the last years, their principles in development policy-making and how their approach is reflected in the formulae applied. The European Union, France, Germany, Japan, the Netherlands, Sweden, the United Kingdom and the United States, which roughly share 70 per cent of the total ODA flows by all DAC donors, were chosen as case studies. In a descriptive analysis, we consider how aid allocation is organised by each donor, focusing on primary institutions/agencies, decision-making processes, and the principles/basic formulae applied in selecting partner countries. A map of the donors in terms of their intentions and allocation/actual flows is drawn. While principles are considered to shape intentions, interests and other confounding factors affect actual flows. In addition, the donors are compared by looking at three aspects of their approaches: firstly, whether donors are strategically-motivated (that is, whether they have security concerns, foreign policy and economic interests as the main motivation in their partner country selection) or follow development-oriented approaches (focusing on recipient-needs); secondly, whether they follow an explicitly stated agenda; and, thirdly, whether intentions are consistent with the actual ODA flows. Looking at these aspects, we suggest that 1) not every donor follows a clear approach in partner country selection; 2) actual ODA flows do not always reflect the stated intentions; and 3) most of the time, donors follow a mixture of development-oriented and strategic approaches.

The World Bank Economic Review, 2009

Have donors changed their aid-allocation criteria over the past three decades toward greater selectivity, a frequently stated goal of the international development community? Using data on how 22 donors allocated their bilateral aid among 147 countries over 1970-2004, the article finds that after the fall of the Berlin wall in 1989 and especially in the late 1990s, bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries. Furthermore, the sensitivity of aid allocation to the country's size and its debt burden has declined over time. These results are robust to different samples and model specifications, various econometric techniques, and alternative measures of institutional quality. While the specific factors causing these changes cannot be identified-these presumably include geopolitical and economic concerns and the many changes in the international aid architecture-donors still differ greatly in their selectivity. This suggests that further, multifaceted reforms are needed to ensure even greater selectivity of aid. JEL codes: O11, O16, O19

2006

This paper synthesises previous findings on bilateral aid allocation behaviours and compares them with multilateral agency behaviours. It shows that self-interest motives predominate developmental motives in bilateral aid allocation decisions, save for Switzerland and a few Nordic donors. The influence of commercial interests plays a major role in this respect and has a much higher quantitative influence on aid allocation than geopolitical motives. Among developmental motives, recipients' needs play a significant role, together with political governance. Bilateral aid allocation is also influenced by multilateral aid flows. Among multilateral donors, the European Commission (EC) has a quite specific behaviour, with a small role played by recipients' needs and merits, and a strong bias in favour of ACP countries. Conversely, multilateral aid, excluding EC's assistance, strongly responds to recipients' needs. Significant influences of US and Japanese commercial interes...

2013

It is rarely possible in practice to draw a clear distinction between bilateral and multilateral aid, as there are overlaps between them and they are often delivered in special forms. Moreover, aid delivered by EU (European Union) institutions differs from multilateral forms of aid. Essentially, there are two perspectives on multilateral aid as a system. The first says that it represents a functioning ‘patchwork’ approach to global challenges. The second claims that it is severely fragmented and inefficient. It is against this backdrop that this article analyses the structural changes taking place within multilateral aid and their implications for the quality of aid.

Theoretical Economics Letters, 2022

This study provides a comparative analysis of the main determinants of large shifts in aid allocation by major donors, namely China, France, the United Kingdom, and the United States. In contrast to continuing assistance, significant year-over-year variation of allocated aid to a given recipient is considered a new and deliberate decision by the donors. Using a version of quantile regression to account for heterogeneity in the characteristics of aid recipients, we show that significant differences exist in the aid allocation strategies of the major donors. There is no conditionality attached to Chinese aid, while self-economic interests and corruption levels at home and in the recipient countries determine aid allocated by France and the U.K. to their former colonies. In addition, recipient needs affect aid from France, the U.K., and the U.S. Over the 2000-2014 period, there is no significant change in the determinants of aid allocation by China in response to various criticisms of its approach. Confronted with the growing influence of emerging donors such as China, the three major traditional donors seem to adjust their aid allocation policy towards their own economic interests.

Review of Development Economics, 2008

This paper models the allocation of bilateral foreign development aid to developing countries. A simple theoretical framework is developed, in which aid is treated as a private good of a donor country bureaucratic group responsible for bilateral aid allocation. This model is applied to time series data for ten principal recipients of bilateral official development assistance. Features of this application are that it caters for the joint determination of aid allocations and for donor allocation behavior to differ among individual recipient countries. Results indicate that both recipient need and donor interest variables determine the amount of foreign aid to developing countries, and that donor allocation behavior often differs markedly among recipients.

International Review of Economics & Finance, 2004

This study has been prepared within the UNU/WIDER project on the Sustainability of External Development Financing, which is directed by Matthew Odedokun.

2012

Review of Development Economics, 2006

This paper examines the role of U.S. domestic politics in the allocation of foreign aid using panel data on aid to 119 countries from 1960 to 1997. Employing proxies for four aid allocation criteria (development concerns, strategic importance, commercial importance, and the degree of democratization), we find evidence that each influences aid allocation, although the evidence is stronger for some criteria (development concerns, commercial importance) than for others (strategic importance, degree of democratization). Furthermore, the allocation pattern depends on the composition of the U.S. government. When the president and Congress are liberal, development concerns receive more weight in the allocation process than when the president and/or Congress are more conservative. When the Congress is more conservative, commercial concerns have more weight than when the Congress is liberal. These findings have practical importance in light of current attempts to overhaul the allocation of both bilateral and multilateral aid. JEL codes: D78, F35, O19, P45 For helpful comments, we thank two anonymous referees, Dino Falaschetti, Markus Goldstein, Wendy Stock, and seminar participants at Montana State University, the 2003 NEUDC Conference, and the 2004 Hamburg Institute of International Economics Conference on the Political Economy of Aid. We also thank Keith Poole for providing some of the data used in this paper. 4 All these papers examine the influence of recipient country characteristics on the allocation of aid between recipients. Alesina and Dollar (2000) update the previous aid allocation literature and investigate the role of recipient country policies and political structure. Alesina and Weder (2002) examine links between recipient country corruption and aid flows. Dreher and Jensen (2003) analyze the influence of the U.S. in IMF lending, finding that countries voting with the U.S. in the UN faced fewer conditions on IMF loans. Fleck and Kilby (2005) test for the influence of U.S. interests on World Bank lending and use the same measure of need as in this paper. Boschini and Olofsgård (2001) assess the importance of the Cold War motive for providing aid, including a variable to measure political orientation of the donor government. Goldstein and Moss (2003) examine the level and share of U.S. bilateral aid to Africa under Republicans and Democrats and find that one must look jointly at the parties controlling the Administration, the House, and the Senate. Neumayer (2003) estimates the extent to which governance enters aid allocation, in aggregate and for many individual bilateral donors and multilateral agencies.