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Aid Motivation in Early and Mature Partnerships: Is there a difference?

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  • Olofsgård, Anders

    () (Stockholm Institute of Transition Economics)

  • Perrotta, Maria

    () (Stockholm Institute of Transition Economics)

  • Frot, Emmanuel

    () (Microeconomix)

Abstract

We argue that the nature of aid flows early on in a bilateral partnership may be different from that at a later stage. Commercial and strategic interests may carry particular weight after a significant regime change when new relationships need to be established, whereas development concerns come to carry greater weight as the relationship matures. We test this argument using the natural experiment of the break-up of communism in Central and Eastern Europe and the former Soviet Union. By looking at the allocation of aid across recipients, how that allocation has changed over time, and the urgency by which donors entered certain markets, we get a sense of the donors' changing priorities. We find that trade flows and geographical proximity lead to more aid during the early period, 1990-95, but not after that. On the other hand, political openness and natural disasters have no effect in the early going but are correlated with more aid in the later time period. We also find that donors are in more urgency to enter into countries with higher per capita incomes and with which they trade, but they also prioritize more democratic countries in this respect. Our results hold up to a thorough sensitivity analysis, including using a gravity model to instrument for bilateral trade flows. Our findings may have implications for what to expect about partnerships, and the role of aid, emerging between Western donors and new regimes put in place by the Arab Spring.

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Bibliographic Info

Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 17.

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Length: 37 pages
Date of creation: 13 Jul 2012
Date of revision:
Handle: RePEc:hhs:hasite:0017

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Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Phone: (+46 8) 736 9670
Fax: (+46 8) 31 64 22
Web page: http://www.hhs.se/site/
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Keywords: Foreign aid; aid allocation; transition countries;

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  1. Richard Paap & Frank Kleibergen, 2004. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Society 2004 Australasian Meetings 195, Econometric Society.
  2. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
  3. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
  4. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  5. Frot, Emmanuel, 2009. "Early vs. Late in Aid Partnerships and Implications for Tackling Aid Fragmentation," SITE Working Paper Series 1, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  6. Fleck, Robert K. & Kilby, Christopher, 2009. "Changing Aid Regimes? U.S. Foreign Aid from the Cold War to the War on Terror," Villanova School of Business Department of Economics and Statistics Working Paper Series 1, Villanova School of Business Department of Economics and Statistics.
  7. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 275-297, November.
  8. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
  9. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  10. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
  11. Ai, Chunrong & Norton, Edward C., 2000. "Standard errors for the retransformation problem with heteroscedasticity," Journal of Health Economics, Elsevier, vol. 19(5), pages 697-718, September.
  12. Frot, Emmanuel & Perrotta, Maria, 2009. "Aid Eff ectiveness: New Instrument, New Results?," SITE Working Paper Series 11, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  13. Anne Boschini & Anders Olofsg�rd, 2007. "Foreign aid: An instrument for fighting communism?," The Journal of Development Studies, Taylor and Francis Journals, vol. 43(4), pages 622-648.
  14. Ilyana Kuziemko & Eric Werker, 2006. "How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 905-930, October.
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