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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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  1. Svensson, J., 1995. "When Is Foreign Aid Policy Credible? Aid Dependence and Conditionality," Papers 600, Stockholm - International Economic Studies.
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  18. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
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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. Nunnenkamp, Peter & Öhler, Hannes, 2011. "Aid Allocation through Various Official and Private Channels: Need, Merit, and Self-Interest as Motives of German Donors," World Development, Elsevier, vol. 39(3), pages 308-323, March.
  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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