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Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation and Budget Support

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  • ARIMOTO Yutaka
  • KONO Hisaki

Abstract

Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. This paper considers aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. We consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences over the success of their own projects to those conducted by others, they provide insufficient budget support relative to aid which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07051.

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Length: 15 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:eti:dpaper:07051

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Cited by:
  1. Kilby, Christopher, 2010. "What Determines the Size of Aid Projects?," Villanova School of Business Department of Economics and Statistics Working Paper Series 10, Villanova School of Business Department of Economics and Statistics.
  2. I�aki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2010. "Less aid proliferation and more donor coordination? The wide gap between words and deeds," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 920-940.
  3. KIMURA Hidemi & SAWADA Yasuyuki & MORI Yuko, 2007. "Aid Proliferation and Economic Growth: A Cross-Country Analysis," Discussion papers 07044, Research Institute of Economy, Trade and Industry (RIETI).

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