The literature on aid effectiveness has focused more on recipient policies than the determinants of aid allocation yet a consistent result is that political allies obtain more aid from donors than non-allies. This paper shows that aid allocated to political allies is ineffective for growth, whereas aid extended to countries that are not allies is highly effective. The result appears to be robust across different specifications and estimation techniques. In particular, new methods are employed to control for endogeneity. The paper suggests that aid allocation should be scrutinized carefully to make aid as effective as possible.
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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number
1027.
Find related papers by JEL classification: O1 - Economic Development, Technological Change, and Growth - - Economic Development O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
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