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Multilateral Aid Agencies and Strategic Donor Behaviour

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Author Info
Mavrotas, George
Villanger, Espen

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Abstract

The paper builds on recent empirical evidence on the importance of strategic donor behaviour in aid allocation in order to develop a theoretical model where donor pressure on a recipient for influencing the aid disbursement of a multilateral institution is endogenously determined. Our game-theoretic, multi-agent model with one aid recipient, two bilateral donors and one multilateral institution illustrates the advantage of putting pressure on the recipient as an instrument for foreign policy, as seen from the mighty donor's point of view. The model shows how this strategic donor behaviour is damaging to the aid-recipient; we also show that other donors not sharing foreign policy goals similar to the strategic, influential donors will, in fact, reduce their aid contributions to the multilateral organizations. This may obviously have profound implications for the volume of total aid flows and may crucially undermine current efforts to substantially increase ODA to meet the Millennium Development Goals by 2015. Our paper also contributes to the common debate on foreign aid by presenting a rigorous model that explains the coexistence of both multilateral aid organizations and bilateral aid programmes.

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number DP2006/02.

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Length: 20 pages
Date of creation: 2006
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Handle: RePEc:unu:wpaper:dp2006-02

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Related research
Keywords: foreign aid; strategic donor behaviour; multilateral aid agencies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Espen Villanger, 2004. "Powerful donors and foreign policy: The role of multilateral financial institutions," CMI Working Papers WP 2004: 12, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  2. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
    Other versions:
  3. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September. [Downloadable!] (restricted)
  5. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February. [Downloadable!] (restricted)
  6. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  7. Espen Villanger, 2004. "Company Influence on Foreign Aid Disbursement: Is Conditionality Credible when Donors Have Mixed Motives?," Southern Economic Journal, Southern Economic Association, vol. 71(2), pages 334-351, October.
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  8. P. Lundborg, 1998. "Foreign Aid and International Support as a Gift Exchange," Economics and Politics, Blackwell Publishing, vol. 10(2), pages 127-142, 07. [Downloadable!] (restricted)
  9. Eric Neumayer, 2003. "What Factors Determine the Allocation of Aid by Arab Countries and Multilateral Agencies?," The Journal of Development Studies, Taylor and Francis Journals, vol. 39(4), pages 134-147, April. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages F191-F216, 06. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
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  13. 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. [Downloadable!] (restricted)
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  14. Lin, Tun & Mavrotas, George, 2004. "A Contract Perspective on the International Finance Facility," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  15. Robert Lensink & Howard White, 2000. "Assessing Aid: A Manifesto for Aid in the 21st Century?," Oxford Development Studies, Taylor and Francis Journals, vol. 28(1), pages 5-18. [Downloadable!] (restricted)
  16. Torsvik, Gaute, 2005. "Foreign economic aid; should donors cooperate?," Journal of Development Economics, Elsevier, vol. 77(2), pages 503-515, August. [Downloadable!] (restricted)
  17. Tarp, Finn, 2006. "Aid and Development," MPRA Paper 13171, University Library of Munich, Germany. [Downloadable!]
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  18. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 66-92, August. [Downloadable!] (restricted)
  19. White, Howard, 2004. "Trends in the volume and allocation of official flows from donor countries," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 233-244. [Downloadable!] (restricted)
  20. Paul Collier & David Dollar, 2004. "Development effectiveness: what have we learnt?," Economic Journal, Royal Economic Society, vol. 114(496), pages F244-F271, 06. [Downloadable!] (restricted)
  21. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers 23, Center for Global Development. [Downloadable!]
  22. Villanger, Espen, 2006. "Company interests and foreign aid policy: Playing donors off against one another," European Economic Review, Elsevier, vol. 50(3), pages 533-545, April. [Downloadable!] (restricted)
  23. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
  24. Burnell, Peter, 2004. "Foreign Aid Resurgent: New Spirit or Old Hangover?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  25. Murshed, S Mansoob & Sen, Somnath, 1995. "Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information," Economic Journal, Royal Economic Society, vol. 105(429), pages 498-509, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Isopi, Alessia & Mavrotas, George, 2006. "Aid Allocation and Aid Effectiveness: An Empirical Analysis," Working Papers RP2006/07, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. Gil S. Epstein & Ira N Gang, 2006. "Decentralizing Aid with Interested Parties," Departmental Working Papers 200629, Rutgers University, Department of Economics. [Downloadable!]
    Other versions:
  3. Epstein, Gil S. & Gang, Ira N., 2008. "Good Governance and Good Aid Allocation," IZA Discussion Papers 3585, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Epstein, Gil S. & Gang, Ira N., 2008. "Poverty and Governance: The Contest for Aid," Working Papers RP2008/76, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  5. J. Atsu Amegashie & Bazoumana Ouattara & Eric Strobl, 2007. "Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Stijn Claessens & Danny Cassimon, 2007. "Empirical evidence on the new international aid architecture," WEF Working Papers 0026, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  7. Kilby, Christopher, . "The Political Economy of Conditionality: An Empirical Analysis of World Bank Enforcement," Vassar College Department of Economics Working Paper Series 92, Vassar College Department of Economics. [Downloadable!]
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