Aid Project Proliferation and Absorptive Capacity
AbstractMuch public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the effectiveness of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs, the donorâs aid and a recipient-side resource, and two outputs, namely, development and âthroughput,â which proxies for the private benefits for both donor and recipient of implementing projects, from kickbacks to career rewards for disbursing. The donorâs allocation of aid across projects is taken as exogenous while the recipientâs allocation of its resource is modeled and subject to a budget constraint. Unless the recipient cares purely about development, increasing aid can reduce development in some circumstances. Sunk costs, representing the administrative burden for the recipient of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipientâs resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. With Cobb-Douglas production, a threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projectsâbut the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2006/04.
Length: 34 pages
Date of creation: 2006
Date of revision:
foreign aid; absorptive capacity; project proliferation;
Other versions of this item:
- F35 - International Economics - - International Finance - - - Foreign Aid
- O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
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.:
- Collier, Paul & Dollar, David, 2002.
"Aid allocation and poverty reduction,"
European Economic Review,
Elsevier, vol. 46(8), pages 1475-1500, September.
- Morss, Elliott R., 1984. "Institutional destruction resulting from donor and project proliferation in Sub-Saharan African countries," World Development, Elsevier, vol. 12(4), pages 465-470, April.
- Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004.
"On The Empirics of Foreign Aid and Growth,"
Royal Economic Society, vol. 114(496), pages F191-F216, 06.
- Michael Clemens & Todd Moss, 2005.
"Ghost of 0.7%: Origins and Relevance of the International Aid Target,"
68, Center for Global Development.
- Michael Clemens & Todd Moss, 2005. "Ghost of 0.7%: Origins and Relevance of the International Aid Target," Development and Comp Systems 0509006, EconWPA.
- David Roodman, 2004.
"An Index of Donor Performance,"
42, Center for Global Development.
- Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting chickens when they hatch: The short-term effect of aid on growth,"
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
- 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.
- Lensink, Robert & White, Howard, 1999.
"Are there negative returns to aid?,"
99E60, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Martin MÃ¼hleisen & Dhaneshwar Ghura & Roger Nord & Michael T. Hadjimichael & E. Murat Ucer, 1995. "Sub-Saharan Africa," IMF Occasional Papers 118, International Monetary Fund.
- Arnab Acharya & Ana Teresa Fuzzo de Lima & Mick Moore, 2006. "Proliferation and fragmentation: Transactions costs and the value of aid," Journal of Development Studies, Taylor & Francis Journals, vol. 42(1), pages 1-21.
- Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
- Kilby, Christopher, 2011.
"What Determines the Size of Aid Projects?,"
Elsevier, vol. 39(11), pages 1981-1994.
- Christopher Kilby, 2010. "What Determines the Size of Aid Projects?," Villanova School of Business Department of Economics and Statistics Working Paper Series 10, Villanova School of Business Department of Economics and Statistics.
- David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers 89, Center for Global Development.
- Raghbendra Jha & T. Palanivel, 2007.
"Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region,"
ASARC Working Papers
2007-02, The Australian National University, Australia South Asia Research Centre.
- Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," Departmental Working Papers 2007-02, The Australian National University, Arndt-Corden Department of Economics.
- Feeny, Simon & de Silva, Ashton, 2012. "Measuring absorptive capacity constraints to foreign aid," Economic Modelling, Elsevier, vol. 29(3), pages 725-733.
- Rahman, Aminur & Sawada, Yasuyuki, 2010.
"Can donor coordination solve the aid proliferation problem ?,"
Policy Research Working Paper Series
5251, The World Bank.
- Rahman, Aminur & Sawada, Yasuyuki, 2012. "Can donor coordination solve the aid proliferation problem?," Economics Letters, Elsevier, vol. 116(3), pages 609-612.
- Hulya Dagdeviren & Simon A. Robertson, 2009. "Access to Water in the Slums of the Developing World," Working Papers 57, International Policy Centre for Inclusive Growth.
- KIMURA Hidemi & SAWADA Yasuyuki & MORI Yuko, 2007.
"Aid Proliferation and Economic Growth: A Cross-Country Analysis,"
07044, Research Institute of Economy, Trade and Industry (RIETI).
- Kimura, Hidemi & Mori, Yuko & Sawada, Yasuyuki, 2012. "Aid Proliferation and Economic Growth: A Cross-Country Analysis," World Development, Elsevier, vol. 40(1), pages 1-10.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruck Tadesse).
If references are entirely missing, you can add them using this form.