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Axel Dreher (University of Goettingen, CESifo, IZA, KOF)

Acting Autonomously or Mimicking the State and Peers? A Panel Tobit Analysis of Financial Dependence and Aid Allocation by Swiss NGOs. Axel Dreher (University of Goettingen, CESifo, IZA, KOF) Peter Nunnenkamp ( Kiel Institute for the World Economy ) Hannes Öhler (University of Goettingen)

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Axel Dreher (University of Goettingen, CESifo, IZA, KOF)

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  1. Acting Autonomously or Mimicking the State and Peers?A Panel Tobit Analysis of Financial Dependence and Aid Allocation by Swiss NGOs Axel Dreher (University of Goettingen, CESifo, IZA, KOF) Peter Nunnenkamp (Kiel Institute for the World Economy) Hannes Öhler (University of Goettingen) Johannes Weisser (Max Planck Institute of Economics, Jena) International Political Economy Society 2009, November 13-14

  2. Motivation • NGOs are channeling an increasing share of development assistance (1996: 17% of DAC’s ODA: equivalent to U.K.) • According to their proponents, NGOs care about the most vulnerable populations and represent the voices of the poor • As NGOs expand, however, they are increasingly funded by institutional donors, and concerns have been voiced about the impact of donor funding on NGOs’ behavior • questions have been raised about their relations with their funding sources • Did NGOs become mere implementers of donors’ policies? • Need to verify whether NGOs do better • To whom and why do NGOs allocate aid?

  3. Hypotheses • Hypothesis 1: NGO aid is focused on the needy, i.e., recipient countries with low per-capita income or hit by disasters • Hypothesis 2: NGOs are relatively strongly engaged in countries with weak institutions to exploit their comparative advantage of working in “difficult” environments • Hypothesis 3: NGOs locate where other NGOs are active, leading to clustering of NGO aid • Hypothesis 4: The preferences of official backdonors affect the allocation of NGO aid

  4. Approach and data • Investigate determinants of NGO aid allocation • Random effects panel Tobit model for aid by ~300 Swiss NGOs across ~130 recipient countries in 2002-2005 (period average). • Dependent variable: (log) NGO aid in US$ • Basic specification: ln_NGOaid = f(ln_pcGDP, Corrupt, ln_Pop, ln_Disaster, Fragile, ln_ODA) • Important extension: • Smith-Blundell procedure to test for endogeneity of ODA • UNGA voting as instrument • Exogeneity not rejected

  5. Approach and data (cont‘d) • Main contribution to the literature: • Focus on financial dependence of each NGO • Share=0 for NGOs without any official refinancing; ~0.03-0.9 for subsample of 40 NGOs • interaction of Share with ODA to assess whether mimicking the state is more pronounced for financially dependent NGOs • differentiation between (self-financed) NGO and officially refinanced NGO aid

  6. Total sample of Swiss NGOs: panel Tobit results, overall marginal effects, total NGO aidStandard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1 (1) (2) (3) (4) Results Per-capita GDP -0.019*** -0.002 -0.020*** -0.014*** (0.004) (0.004) (0.004) (0.002) Population 0.039*** 0.024*** 0.042*** 0.028*** (0.003) (0.003) (0.004) (0.002) Disaster 0.006*** 0.006*** 0.005*** 0.004*** (0.001) (0.001) (0.001) (0.001) Corruption -0.006 0.009 0.000 -0.000 (0.007) (0.006) (0.006) (0.004) Fragile 0.006 0.013 0.005 0.004 (0.009) (0.008) (0.008) (0.005) ODA 0.017*** (0.002) ODAresid 0.094*** 0.062*** (0.010) (0.007) NGO budget 0.036*** (0.003) Share -0.059** (0.023) ODAresid_x_Share 0.092** (0.038) Observations 38682 38682 38682 38682 Number of NGOs 307 307 307 307

  7. Total sample of Swiss NGOs:Interaction effect ODAresid*Share

  8. Additional results • NGOs go where other NGOs go (but independent of share) • Poverty orientation and allocation to difficult environments is not affected by financial dependence • Results for total aid by co-financed NGOs similar • Allocation of “own” money • Biased towards easier environments • (but poverty orientation similar to that of contributions) • Allocation of contributions • Stronger tendency to follow ODA

  9. Summary • Hypothesis 1: NGO aid is focused on the needy, i.e., recipient countries with low per-capita income or hit by disasters • Hypothesis 2: NGOs are relatively strongly engaged in countries with weak institutions to exploit their comparative advantage of working in “difficult” environments • Hypothesis 3: NGOs locate where other NGOs are active, leading to clustering of NGO aid • Hypothesis 4: The preferences of official backdonors affect the allocation of NGO aid

  10. Secret bonus level

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