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Aid Allocation Rules

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  • Patrick Carter

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Abstract

This paper studies the aid allocation rule used by major development agencies, and investigates optimal allocations when recipients are neoclassical economies undergoing transition dynamics. When recipients face aid absorption constraints, allocations that favor poorer recipients are not always optimal, contrary to what is assumed in assessments of donor performance. The most quantitatively significant determinants of the optimal sensitivity to recipient characteristics are the generosity of the aid budget and the extent of absorption constraints. In neoclassical recipients aid can only accelerate growth where there is already growth, so the optimal rule places little weight on growth and optimality is largely a matter of balancing recipient need against absorption constraints.

Suggested Citation

  • Patrick Carter, 2012. "Aid Allocation Rules," Bristol Economics Discussion Papers 12/630, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:uobdis:12/630
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    Cited by:

    1. Presbitero, Andrea F., 2016. "Too much and too fast? Public investment scaling-up and absorptive capacity," Journal of Development Economics, Elsevier, vol. 120(C), pages 17-31.
    2. Patrick GUILLAUMONT & Phu NGUYEN-VAN & Thi Kim Cuong PHAM & Laurent WAGNER, 2015. "Efficient and fair allocation of aid," Working Papers 3938, FERDI.
    3. Ngoc-Sang PHAM & Thi Kim Cuong PHAM, 2017. "Economic growth and escaping the poverty trap: how does development aid work?," Working Papers P197, FERDI.
    4. Patrick Carter & Jonathan R. W. Temple, 2017. "Virtuous Circles and the Case for Aid," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 397-425, June.
    5. Carter, Patrick & Postel-Vinay, Fabien & Temple, Jonathan, 2015. "Dynamic aid allocation," Journal of International Economics, Elsevier, vol. 95(2), pages 291-304.
    6. repec:eee:wdevel:v:106:y:2018:i:c:p:136-148 is not listed on IDEAS
    7. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, Department of Economics, University of Bristol, UK, revised 02 Dec 2014.
    8. Jamie Robertsen & Nathalie Francken & Nadia Molenaers, 2015. "Determinants of the Flow of Bilateral Adaptation-Related Climate Change Financing to Sub-Saharan Africa," LICOS Discussion Papers 37315, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    More about this item

    Keywords

    Foreign Aid; Allocation Rules; Economic Growth; Absorption Constraints;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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