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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?


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selectivity and foreign aid allocation is there an improvement

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
Introduction
  • 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.
recent developments
Recent developments
  • 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).
slide6
Aims
  • 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?
empirical methodology
Empirical Methodology
  • 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.
empirical methodology8
Empirical Methodology
  • 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
donors behavior 1984 200312
Donors’ behavior 1984-2003
  • 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
changes in donors behavior since 199815
Changes in donors’ behavior since 1998
  • 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)