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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? 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 • 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 • 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).
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 • 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 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 1984-2003 • 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 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)