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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, Research Department in its series Research Department Publications with number 4500.

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Date of creation: Dec 2006
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Handle: RePEc:idb:wpaper:4500

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References

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  1. 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.
  2. Birdsall, Nancy & Claessens, Stijn & Diwan, Ishac, 2002. "Will HIPC Matter? The Debt Game and Donor Behaviour in Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. 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.
  4. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth," IMF Working Papers 05/127, International Monetary Fund.
  5. Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
  6. Riccardo Faini & Enzo Grilli, 2004. "Who runs the IFIs?," Development Working Papers 191, Centro Studi Luca d\'Agliano, University of Milano.
  7. David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers 89, Center for Global Development.
  8. Gilbert, Christopher & Powell, Andrew & Vines, David, 1999. "Positioning the World Bank," Economic Journal, Royal Economic Society, vol. 109(459), pages F598-633, November.
  9. 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.
  10. Rodrik, Dani, 1995. "Why is there Multilateral Lending?," CEPR Discussion Papers 1207, C.E.P.R. Discussion Papers.
  11. Alberto Chong & Mark Gradstein, 2006. "Who’s Afraid of Foreign Aid? The Donors’ Perspective," CESifo Working Paper Series 1833, CESifo Group Munich.
  12. Robert J Barro & Jong-Wha Lee, 2003. "IMF Programs: Who Is Chosen and What Are the Effects?," Departmental Working Papers 2003-09, The Australian National University, Arndt-Corden Department of Economics.
  13. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  14. Torsvik, Gaute, 2005. "Foreign economic aid; should donors cooperate?," Journal of Development Economics, Elsevier, vol. 77(2), pages 503-515, August.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. Carmen Altés, 2008. "Turismo y desarrollo en México," Research Department Publications 2008, Inter-American Development Bank, Research Department.
  5. 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.
  6. Fabian Barthel & Eric Neumayer & Peter Nunnenkamp & Pablo Selaya, 2013. "Competition for Export Markets and the Allocation of Foreign Aid: The Role of Spatial Dependence among Donor Countries," Kiel Working Papers 1875, Kiel Institute for the World Economy.
  7. Matteo Bobba & Andrew Powell, 2007. "Aid and Growth: Politics Matters," Research Department Publications 4511, Inter-American Development Bank, Research Department.
  8. Matteo Bobba & Andrew Powell, 2007. "Ayuda y crecimiento: La política importa," Research Department Publications 4512, Inter-American Development Bank, Research Department.

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