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Aid Allocation Rules

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  • Patrick Carter

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Abstract

This paper studies the aid allocation rule used by major development agencies, and investigates optimal allocations when recipients are neoclassical economies undergoing transition dynamics. When recipients face aid absorption constraints, allocations that favor poorer recipients are not always optimal, contrary to what is assumed in assessments of donor performance. The most quantitatively significant determinants of the optimal sensitivity to recipient characteristics are the generosity of the aid budget and the extent of absorption constraints. In neoclassical recipients aid can only accelerate growth where there is already growth, so the optimal rule places little weight on growth and optimality is largely a matter of balancing recipient need against absorption constraints.

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File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp12630.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 12/630.

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Length: 36 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:bri:uobdis:12/630

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Keywords: Foreign Aid; Allocation Rules; Economic Growth; Absorption Constraints;

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