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

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Author Info
SAWADA Yasuyuki
YAMADA Hiroyuki
KUROSAKI Takashi

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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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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
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Handle: RePEc:eti:dpaper:08025

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  13. 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. [Downloadable!] (restricted)
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  17. Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September. [Downloadable!]
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  19. 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. [Downloadable!] (restricted)
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