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Competitive Proliferation of Aid Projects: A Model

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  • David Roodman

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Abstract

The proliferation of aid projects may overburden recipient governments with reporting requirements, donor visits, and other administrative overhead, siphoning off scarce domestic recipient resources, such as tax revenue or the time of skilled government officials, from directly productive use. But greater oversight may also improve the administration of projects, increasing development. I present a model of aid projects that reflects both sides of this coin. It posits a distinction between national-level governance and project-level governance. A donor can raise project-level governance above the baseline national level by requiring oversight activities of the recipient, although the benefits from doing so are less where national-level governance is already high. The model assumes that larger projects demand proportionally less oversight activity from the recipient. Comparative statics analysis suggests that to maximize development, projects should be larger where aid volume is higher, to avoid overburdening recipient administrative capacity; where recipient resources are scarcer, for the same reason; and where national governance is good, since the marginal benefit of oversight is then lower. A multi-donor generalization shows how donors that are imperfectly altruistic, caring most about the success of their own projects, will tend to sink into competitive proliferation, in which each donor subdivides its aid budget into smaller projects to raise the marginal productivity of the recipient’s resources in those projects and attract them away from other donors. The inefficiency arises from the lack of a market among donors for recipient resources. In a Nash equilibrium, competitive proliferation reduces overall development. But the smallest (selfish) donors can gain. This would discourage them from cooperating with other donors to contain competitive proliferation.

Suggested Citation

  • David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers 89, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:89
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    References listed on IDEAS

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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. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, vol. 83(1), pages 176-197, May.
    3. Roodman, David, 2006. "Aid Project Proliferation and Absorptive Capacity," WIDER Working Paper Series 004, World Institute for Development Economic Research (UNU-WIDER).
    4. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    5. 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.
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    Cited by:

    1. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
    2. Iñaki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2010. "Less aid proliferation and more donor coordination? The wide gap between words and deeds," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 920-940.
    3. Matteo Bobba & Andrew Powell, 2006. "Multilateral Intermediation of Foreign Aid: What is the Trade-Off for Donor Countries?," Research Department Publications 4500, Inter-American Development Bank, Research Department.
    4. Lee, Suejin A. & Lim, Jae-Young, 2014. "Does International Health Aid Follow Recipients’ Needs? Extensive and Intensive Margins of Health Aid Allocation," World Development, Elsevier, vol. 64(C), pages 104-120.
    5. Matteo Bobba & Andrew Powell, 2006. "Mediación multilateral de la ayuda extranjera," Research Department Publications 4501, Inter-American Development Bank, Research Department.
    6. Hyun-Hoon Lee & Donghyun Park & Meehwa Shin, 2015. "Do Developing-country WTO Members Receive More Aid for Trade (AfT)?," The World Economy, Wiley Blackwell, vol. 38(9), pages 1462-1485, September.
    7. 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.

    More about this item

    Keywords

    Foreign aid; donor coordination; project proliferation;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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