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Multilateral Intermediation of Foreign Aid: What is the Trade-Off for Donor Countries?

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  • Matteo Bobba
  • Andrew Powell

Abstract

Why would bilateral donors intermediate aid through a multilateral and not extend aid directly? This paper suggests a trade-off: multiple bilateral donors for each recipient may imply coordination and strategic problems but intermediating through a multilateral may dilute individual donor objectives. The paper conducts traditional panel and truly bilateral regressions with bilateral-pair, fixed effects to model aid allocation decisions. The results confirm that politics is important for bilateral donors but also that aid fragmentation and strategic behavior affect aid allocation. Multilaterals solve strategic and coordination problems between donors and, while politics remains significant, there is some evidence for a dilution of this effect.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6728.

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Date of creation: Dec 2006
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Handle: RePEc:idb:brikps:6728

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Keywords: Rural & Urban Development :: Public Utilities; Multilateral; Intermediation; Foreign Aid; Donor Countries; WP-594;

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References

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  1. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  2. Alberto Chong & Mark Gradstein, 2006. "Who’s Afraid of Foreign Aid? The Donors’ Perspective," CESifo Working Paper Series 1833, CESifo Group Munich.
  3. Knack, Stephen & Rahman, Aminur, 2004. "Donor fragmentation and bureaucratic quality in aid recipients," Policy Research Working Paper Series 3186, The World Bank.
  4. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  5. Raul Hopkins & Andrew Powell & Amlan Roy & Christopher L. Gilbert, 1997. "The World Bank And Conditionality," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(4), pages 507-516.
  6. Faini, Riccardo & Grilli, Enzo, 2004. "Who Runs the IFIs?," CEPR Discussion Papers 4666, C.E.P.R. Discussion Papers.
  7. Robert J. Barro & Jong-Wha Lee, 2002. "IMF Programs: Who is Chosen and What Are the Effects?," NBER Working Papers 8951, National Bureau of Economic Research, Inc.
  8. Steve Radelet, 2006. "A Primer on Foreign Aid," Working Papers 92, Center for Global Development.
  9. 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.
  10. Gilbert, Christopher & Powell, Andrew & Vines, David, 1999. "Positioning the World Bank," Economic Journal, Royal Economic Society, vol. 109(459), pages F598-633, November.
  11. Dani Rodrik, 1995. "Why is there Multilateral Lending?," NBER Working Papers 5160, National Bureau of Economic Research, Inc.
  12. Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
  13. Torsvik, Gaute, 2005. "Foreign economic aid; should donors cooperate?," Journal of Development Economics, Elsevier, vol. 77(2), pages 503-515, August.
  14. David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers 89, Center for Global Development.
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Cited by:
  1. Eduardo A. Cavallo & Patricio Valenzuela & Eduardo Borensztein, 2007. "La Sostenibilidad de Deuda frente a Riesgo de Catastrofes Naturales," Research Department Publications 4523, Inter-American Development Bank, Research Department.
  2. Matteo Bobba & Andrew Powell, 2007. "Aid and Growth: Politics Matters," Research Department Publications 4511, Inter-American Development Bank, Research Department.
  3. Carmen Altés, 2008. "Turismo y desarrollo en México," Research Department Publications 2008, Inter-American Development Bank, Research Department.
  4. Matteo Bobba & Andrew Powell, 2007. "Ayuda y crecimiento: La política importa," Research Department Publications 4512, Inter-American Development Bank, Research Department.
  5. Matteo Bobba & Andrew Powell, 2007. "Aid Effectiveness: Politics Matters," IDB Publications 6725, Inter-American Development Bank.
  6. Eduardo A. Cavallo & Patricio Valenzuela & Eduardo Borensztein, 2007. "Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance," Research Department Publications 4522, Inter-American Development Bank, Research Department.
  7. Oscar Becerra & Eduardo Cavallo & Ilan Noy, 2010. "In the Aftermath of Large Natural Disasters, what happens to foreign aid?," Working Papers 201018, University of Hawaii at Manoa, Department of Economics.
  8. Andreas Fuchs & Peter Nunnenkamp & Hannes Öhler, 2013. "Why Donors of Foreign Aid Do Not Coordinate: The Role of Competition for Export Markets and Political Support," Kiel Working Papers 1825, Kiel Institute for the World Economy.

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