Selectivity and foreign aid allocation is there an improvement
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Selectivity and Foreign Aid Allocation: Is there an Improvement?. Luis Angeles, Celine Azemar and Farhad Noorbakhsh 8-9 April 2008, United Nations Headquarters, New York. Introduction. Large emphasis in aid selectivity since the late 1990s

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Selectivity and foreign aid allocation is there an improvement l.jpg

Selectivity and Foreign Aid Allocation: Is there an Improvement?

Luis Angeles, Celine Azemar and Farhad Noorbakhsh

8-9 April 2008, United Nations Headquarters, New York


Introduction l.jpg
Introduction Improvement?

  • Large emphasis in aid selectivity since the late 1990s

  • Aid is deemed more selective if it is allocated according to the criteria of need and merit.

  • “Aid effectiveness” literature

    • Aid works in countries with good policies and institutions: Burnside and Dollar (2000), first published in 1998.

    • Lack of robustness in Burnside and Dollar (2000) has been found by Easterly et al. (2004) and others.

    • Aid has also been found to work under other conditions.


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Recent developments Improvement?

  • Large multilateral and bilateral donors have adhered to the idea of making aid more selective (World Bank 2002, DFID 2003).

  • At the same time, there has been an increasing acceptance of the idea that more aid should be given (Millennium Development Goals, G8 Summit at Gleneagles).


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Recent developments Improvement?


Recent developments5 l.jpg
Recent developments Improvement?


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Aims Improvement?

  • Analyses of donors’ behavior over the last few years show mixed results (Dollar and Levin 2006, Easterly 2007, Nunnenkamp and Thiele 2007).

  • Aims of this paper:

  • Analyze the behavior of aid donors over the period 1984-2003.

  • Test whether there have been changes in this behavior since the late 1990s. Has aid become more selective?


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Empirical Methodology Improvement?

  • Baseline econometric specification:

  • We consider 3 types of determinants of aid flows

    • Recipient countries’needs: GDP per capita

      (we also used the Human Development Index)

    • Recipient countries’ merits: inflation rate, democracy and institutional quality

    • Donor countries’ interests: exports/donor GDP , colonial dummies.


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Empirical Methodology Improvement?

  • We use 2 econometric methodologies:

    • Panel with fixed effects

    • Tobit

  • Data:

    • Aid data from OECD (gross flows), 104 aid recipient countries

    • GDP per capita: Penn World Tables

    • Inflation: World Bank

    • Democracy: Freedom House

    • Institutional quality: ICRG

    • Exports/GDP: OECD and World Bank





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Donors’ behavior 1984-2003 Improvement?

  • There is quite some selectivity in aid allocation

  • GDP per capita has a negative effect on aid flows

  • Inflation and democracy have the expected effect

  • For institutional quality the results are mixed

  • Donors’ interests also play a role:

    • More aid flows to trade partners

    • More aid to ex-colonies and geopolitically key countries




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Changes in donors’ behavior since 1998 Improvement?

  • Aid becomes more poverty-oriented.

    • This result differs from Easterly (2007) and Dollar and Levin (2006)

  • For several bilateral donors aid is less linked to trade

    • Not discussed previously in the literature

  • No improvement in the importance given to inflation or democracy, but institutional quality becomes more relevant.

    • Similar results obtained by Dollar and Levin (2006)


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