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Is Aid Allocation Consistent with Global Poverty Reduction?: A Cross-Donor Comparison

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  • SAWADA Yasuyuki
  • YAMADA Hiroyuki
  • KUROSAKI Takashi

Abstract

In this paper, we investigate the gap between the first target of the Millennium Development Goals (MDGs) and the actual allocation of grant aid in the late-1990s and the early-2000s in order to identify necessary policy adjustments to achieve the goal. As a theoretical framework, we extend the poverty-targeting model of Besley and Kanbur (1988) by considering multiple donors and possible strategic interactions among them. To test theoretical predictions, we employ detailed data on grant aid allocation of eleven major aid donor countries and on aid disbursement of six international institutions including the IBRD, IDA, and UN organizations. Four main empirical results emerged. First, both in the late-1990s and the early-2000s, grant allocations from Canada, France, Japan, the Netherlands, and UK are consistent with the necessary conditions of optimal poverty targeting. Second, we found that there is a negative population scale effect for aid allocation, suggesting that strategic motives may also exist. Third, the overall results for multilateral donors indicate that allocation patterns are consistent with the theory of poverty targeting. Finally, there has been a recent improvement in coordination among major donors in reducing global poverty.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 08025.

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Length: 43 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:eti:dpaper:08025

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References

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  1. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  2. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA.
  3. Xavier Sala-i-Martin, 2006. "The World Distribution of Income: Falling Poverty and ... Convergence, Period," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 351-397, May.
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  8. Charles C. Chang & Eduardo Fernández-Arias & Luis Servén, 1998. "Measuring Aid Flows: A New Approach," IDB Publications 6447, Inter-American Development Bank.
  9. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
  10. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  11. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
  12. Sajal Lahiri & Pascalis Raimondos-Møller, 1999. "Lobbying by Ethnic Groups and Aid Allocation," EPRU Working Paper Series 99-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Oct 2003.
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  16. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  17. Wall, Howard J., 1995. "The allocation of official development assistance," Journal of Policy Modeling, Elsevier, vol. 17(3), pages 307-314, June.
  18. Dowling, J. M. & Hiemenz, Ulrich, 1985. "Biases in the allocation of foreign aid: Some new evidence," World Development, Elsevier, vol. 13(4), pages 535-541, April.
  19. Trumbull, William N & Wall, Howard J, 1994. "Estimating Aid-Allocation Criteria with Panel Data," Economic Journal, Royal Economic Society, vol. 104(425), pages 876-82, July.
  20. Hagen, Rune Jansen, 2006. "Samaritan agents? On the strategic delegation of aid policy," Journal of Development Economics, Elsevier, vol. 79(1), pages 249-263, February.
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Citations

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Cited by:
  1. Shimeles Abebe, 2010. "Working Paper 121 - Financing Goal 1 of the MDGs in Africa: Some Evidence from Cross-Country Data," Working Paper Series 258, African Development Bank.
  2. Peter Nunnenkamp & Hannes Öhler, 2009. "Aid Allocation through Various Official and Private Channels: Need, Merit and Self-Interest as Motives of German Donors," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 16, Courant Research Centre PEG.
  3. SAWADA Yasuyuki & YAMADA Hiroyuki & KUROSAKI Takashi, 2008. "Is Aid Allocation Consistent with Global Poverty Reduction?: A Cross-donor comparison (Japanese)," Discussion Papers (Japanese) 08065, Research Institute of Economy, Trade and Industry (RIETI).

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