Lobbying by ethnic groups and aid allocation

We develop a political-economic model of foreign aid allocation. Each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin, and the government accepts political contributions from lobby groups. Initial per-capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium. We also examine the effects of changes in the degree of corruption, aid fatigue, and ethnic composition, in the donor country on the allocation of aid.

Background paper : "Aid effectiveness and selectivity : integrating multiple objectives into aid allocation"

Research on development aid has largely focused on the effectiveness of these transfers in promoting growth or on their allocation among developing countries. Rarely if ever did these research areas intersect, in that studies seeking to explain observed or prescribe optimal inter-country aid allocations did not take into account effectiveness issues and vice versa. Collier and Dollar (C-D, 2002), in a move broadly consistent with the IDA’s long-standing approach to its country allocation system, changed this state of affairs with their “aid selectivity” approach to inter-country aid allocation. C-D, building on the empirical work of Burnside and Dollar (B-D, 1997, 2000), which concluded that the effectiveness of aid in promoting growth depended on the policy regimes of recipient countries, derived “poverty efficient” inter-recipient aid allocations. According to the prescriptive C-D selectivity approach, optimal aid allocation favours countries with high levels of poverty, low per capita incomes and sound policy regimes. Such allocations are considered poverty efficient by maximising the number of people pulled out of poverty. Countries with unsound policies regimes receive less aid in the C-D selectivity approach as these regimes lessen aid’s impact on growth and thus poverty reduction.

Modelling aid allocation : issues, approaches and results

There is a widespread view that political criteria have received less emphasis in aid allocation since the end of the cold war, with a greater share of aid subsequently being based on developmental criteria. An observed increase in aid effectiveness is attributed to this shift. A reasonably large literature on aid allocation supports this view: a number of influential, widely cited studies conclude that developmental criteria played no role in the 1970s and 1980s inter-recipient aid allocation. This paper argues that the shift is not as significant as commonly thought. It points to a number of methodological weaknesses in the dominant modelling approach used within the literature, showing that more rigorous econometric methods suggest that developmental criteria have had a larger influence on cold war period aid allocation than previously thought. An alternative interpretation of the observed increase in aid effectiveness is provided.

Descriptive and prescriptive analyses of aid allocation : approaches, issues and consequences

Studies of the interrecipient allocation of aid may be categorized threefold. First, there are those that attempt to explain the observed allocation of aid. Second, there are those that seek to describe or evaluate the allocation of aid against normative criteria. Third, there are those that seek to prescribe the interrecipient allocation of aid by calculating the amounts of aid each country should receive, also based on normative criteria. This article looks at the second and third categories of studies. It commences by looking at the different approaches and a descriptive measure used, and then repeats this exercise for the prescriptive literature. It then looks at differences between the prescribed allocations of the different approaches used in the literature. These allocations are then compared with actual allocations and evaluated against various normative criteria. This reveals significant differences, both between prescribed and actual allocations and the evaluations of the different prescriptive approaches.

Modelling inter-temporal aid allocation : a new application with a focus on Papua New Guinea

This paper models the inter-temporal allocation of foreign development aid to Papua New Guinea (PNG). A formal theoretical model of aid allocation is developed, in which aid to any one country is determined jointly with aid to all other recipient countries. This is recognized in the econometric application of this model, which involves simultaneously modelling aid to a number of countries in addition to PNG. Results based on data for the period 1969–99 indicate that both recipient need and donor interest variables determine the amount of foreign aid to PNG and most other countries under consideration.

Aid allocation and fragile states

This chapter summarizes research on aid allocation and effectiveness, highlighting the current findings of recent research on aid allocation to fragile states. Fragile states are defined by the donor community as those with either critically poor policies or poorly performing institutions, or both. The chapter examines the research findings in the broader context of research and analysis on how aid should and is being allocated across all developing countries. Various aid allocation models and their implications for aid to fragile states are considered. The chapter also looks at types of instruments and their sequencing in fragile states.

Aid allocation of the emerging Central and Eastern European donors

This paper examines the main characteristics of the (re-)emerging foreign aid policies of the Visegrád countries (the Czech Republic, Hungary, Poland, Slovakia), concentrating on the allocation of their aid resources. I adopt an econometric approach, similar to the ones used in the literature, for analysing the aid allocation of the OECD DAC donors. Using this approach, I examine the various factors that influence aid allocation of the Visegrád countries, using data for the years between 2001 and 2008. The most important conclusion is that the amount of aid a partner country gets from the four emerging donors is not influenced by the level of poverty or the previous performance of the recipients (measured by the level of economic growth or the quality of institutions). The main determining factor seems to be geographic proximity, as countries in the Western Balkans and the Post-Soviet region receive much more aid from the Visegrád countries than other recipients. Historical ties (pre-1989 development relations) and international obligations in the cases of Afghanistan and Iraq are also found to be significant explanatory factors. This allocation is in line with the foreign political and economic interests of these new donors. Although there are clear similarities between the four donors, this paper also identifies some individual country characteristics.

Aid Allocation of the Emerging Central and Eastern European Donors

The paper examines the main characteristics of the (re)emerging foreign aid policies of the Visegrád countries (the Czech Republic, Hungary, Poland, Slovakia), concentrating on the allocation of their aid resources. We adopt an econometric approach, similar to the ones used in the literature for analyzing the aid allocation of the OECD DAC donors. Using this approach, we examine the various factors that influence aid allocation of the Visegrád countries, using data for the years between 2001 and 2008. Our most important conclusion is that the amount of aid a partner county gets from the four emerging donors is not influenced by the level of poverty or the previous performance (measured by the level of economic growth or the quality of institutions) of the recipients. The main determining factor seems to be geographic proximity, as countries in the Western-Balkans and the Post-Soviet region receive much more aid from the Visegrád countries than other recipients. Historical ties (pre-1989 development relations) and international obligations in the case of Afghanistan and Iraq are also found to be significant explanatory factors. This allocation is in line with the foreign political and economic interests of these new donors. While there are clear similarities between the four donors, the paper also identifies some individual country characteristics.

Aid Allocation of the Emerging Central and Eastern European Donors

The paper examines the main characteristics of the (re)emerging foreign aid policies of the Visegrád countries (the Czech Republic, Hungary, Poland, Slovakia), concentrating on the allocation of their aid resources. We adopt an econometric approach, similar to the ones used in the literature for analyzing the aid allocation of the OECD DAC donors. Using this approach, we examine the various factors that influence aid allocation of the Visegrád countries, using data for the years between 2001 and 2008. Our most important conclusion is that the amount of aid a partner county gets from the four emerging donors is not influenced by the level of poverty or the previous performance (measured by the level of economic growth or the quality of institutions) of the recipients. The main determining factor seems to be geographic proximity, as countries in the Western-Balkans and the Post-Soviet region receive much more aid from the Visegrád countries than other recipients. Historical ties (pre-1989 development relations) and international obligations in the case of Afghanistan and Iraq are also found to be significant explanatory factors. This allocation is in line with the foreign political and economic interests of these new donors. While there are clear similarities between the four donors, the paper also identifies some individual country characteristics.

Reforming performance-based aid allocation practice

Performance-based aid allocation systems are used by a number of multilateral agencies to allocate aid among developing countries. A number of bilateral agencies also allocate aid on the basis of the performance of recipients, albeit in a less systematic way than these multilateral agencies. This paper points to a number of fundamental problems associated with performance-based aid allocation systems, including a problematic balancing of need and performance criteria, being reductionist with respect to the drivers of effective aid and not being sufficiently nuanced with respect to performance by ignoring a lack of human capital and economic vulnerability in recipient countries. Together with providing a theoretical framework that articulates these issues, this paper introduces and outlines the papers that follow in this Special Section.

The allocation of development aid assistance : do new donors have old motives?

The aid allocation literature explores the motives behind development aid  assistance. This literature is enormous, yet surprisingly, the extant empirical  studies have in the main only focused on the motives of established donors. Consequently, relatively little is known of the motives of new donors. This paper explores the aid allocation motives of three relatively new DAC donors: Greece, Luxembourg, and Portugal. Both OLS and Tobit two-way effects estimators are used to model their aid allocation process. The results indicate that humanitarian concerns are not an important factor for these three donors. Greece contributes aid predominately to its neighbors and to transitional East European nations. Portugal is motivated by commercial interests and former colony status. The bandwagon effect exists in reverse for Portugal. Commercial interests operate also for Luxembourg. Additionally, Luxembourg appears to donate to smaller more developed countries and is less inclined to donate to East European nations.

Performance assessment, vulnerability, human capital, and the allocation of aid among developing countries

Developing country performance with respect to economic policies and institutional behavior is a common criterion for the allocation of aid among recipient countries. This paper examines how performance is used, arguing that performance is too narrowly defined. A more appropriate definition is one that controls for the economic vulnerability and human capital of developing countries. Econometric analysis of cross-section and panel data is presented that supports this contention. The paper also contends that performance and exogenous economic shocks are likely to be pro-cyclical. This implies a double punishment when aid is allocated according to performance. Evidence of such punishment is also provided. The paper concludes by arguing that economic vulnerability and human capital variables should augment performance measures in aid allocation decision-making.

Humanitarianism or self-serving hypocrisy? : the provision of aid to South Africa under the Hawke-Keating and Howard governments

General perceptions of foreign aid commonly engender images of humanitarianism and altruism, whereby the humanitarian needs of the recipient of development assistance are of the utmost priority of the aid donor. However, the Australian governments led by Hawke, Keating and Howard often gave humanitarianism a low emphasis, frequently placing Australia’s own foreign policy and economic concerns at the forefront of aid allocation – often unashamedly. This self-interest met through aid meant that most was provided to Australia’s regional neighbourhood, neglecting some of the poorest, most struggling states, including South Africa. Other issues and events, including the Cold War, apartheid, terrorism and HIV/AIDS also affected Australia’s aid policy; mostly, they were used as excuses to limit aid to states like South Africa.