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Coordination failure in foreign aid

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  • Halonen-Akatwijuka, Maija

Abstract

The author analyzes the allocation of foreign aid to various sectors in a recipient developing country. Donors tend to favor social sectors over other public expenditure programs. Due to incomplete information, donors may concentrate too much on priority sectors, leaving lower-priority yet important sectors lacking funds. Alternatively there may be gaps in services in priority areas because of the information problem. The author finds that the more similar preferences the donors have, the more scope there is for coordination failure. Therefore improving information is particularly important when the parties have similar priorities. A joint database on planned projects and budget allocations in each recipient country would provide such information. The author's point is that such databases should have both information on current projects and forward-looking information on the planned activities needed to improve aid coordination. She also analyzes the aid fungibility problem in an incomplete information setting and finds that incomplete information reduces the fungibility problem. On the other hand, incomplete information introduces coordination failure and the allocation can be inferior for both the recipient and the donor.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3223.

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Date of creation: 01 Feb 2004
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Handle: RePEc:wbk:wbrwps:3223

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Keywords: Environmental Economics&Policies; Public Health Promotion; Health Monitoring&Evaluation; Economic Adjustment and Lending; Agricultural Knowledge&Information Systems; Economic Adjustment and Lending; Environmental Economics&Policies; Health Monitoring&Evaluation; Health Economics&Finance; Agricultural Knowledge&Information Systems;

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  1. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  2. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  3. Kemp, Murray C., 1984. "A note of the theory of international transfers," Economics Letters, Elsevier, vol. 14(2-3), pages 259-262.
  4. Kanbur, Ravi & Sandler, Todd & Morrison, Kevin, 1999. "The Future of Development Assistance: Common Pools and International Public Goods," Staff General Research Papers 1629, Iowa State University, Department of Economics.
  5. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
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Cited by:
  1. Leiderer, Stefan, 2013. "Donor coordination for effective government policies? Implementation of the new aid effectiveness agenda in health and education in Zambia," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
  3. Acharya, Arnab & Alvarez, Melisa Mart.nez, 2012. "Aid Effectiveness in the Health Sector," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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