An Empirical Model for U.S. Foreign Aid Allocation

This paper revisits the U.S. foreign aid drivers and addresses two shortcomingsin the literature on aid allocation. The first relates to the widespread use of staticmodels for aid allocation, despite of the general recognition that inertia may be akey determinant of donors’ decisions. The second, concerns the divergence betweenthe importance given to merit-based motivations for aid provision in donors’ officialdeclarations, on the one hand, and the poor measurement of such motivations inempirical studies, on the other hand. This paper combines a dynamic modeling thataccounts for inertia, a proper treatment of the sample selection problem, and mostimportantly, uses proxies for the merit-based motivations in the spirit of the “WashingtonConsensus” requirements. Next, the paper moves beyond existing studies bymeasuring the relative importance to the U.S. of need, merit-based, and self-interestmotivations. Furthermore, the analysis explores the link between the relative importanceof the motivation vectors and the geographic distribution of aid recipients.This allows to explain why conditionality, an integral part of most aid contracts, isnot enforced with the same rigor by the same donor when dealing with geographicallydifferent recipients.