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An Empirical Model for U.S. Foreign Aid Allocation

Listed author(s):
  • Mohamed Mounir Sraieb

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.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2015-48.

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Length: 47 p.
Date of creation: Nov 2015
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/221416
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  1. François Bourguignon & Mark Sundberg, 2007. "Aid Effectiveness – Opening the Black Box," American Economic Review, American Economic Association, vol. 97(2), pages 316-321, May.
  2. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does US aid buy UN general assembly votes? A disaggregated analysis," Public Choice, Springer, vol. 136(1), pages 139-164, July.
  3. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions?," Journal of Development Economics, Elsevier, vol. 88(1), pages 1-18, January.
  4. Andreas Fuchs & Peter Nunnenkamp & Hannes Öhler, 2015. "Why Donors of Foreign Aid Do Not Coordinate: The Role of Competition for Export Markets and Political Support," The World Economy, Wiley Blackwell, vol. 38(2), pages 255-285, 02.
  5. 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.
  6. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
  7. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
  8. Jean-Claude Berthélemy, 2006. "Bilateral Donors' Interest vs. Recipients' Development Motives in Aid Allocation: Do All Donors Behave the Same?," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 179-194, 05.
  9. Mosley, Paul, 1985. "The Political Economy of Foreign Aid: A Model of the Market for a Public Good," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 373-393, January.
  10. Fumitaka Furuoka, 2008. "A Dynamic Model of Foreign Aid Allocation," Economics Bulletin, AccessEcon, vol. 15(8), pages 1-13.
  11. Anke Hoeffler & Verity Outram, 2011. "Need, Merit, or Self‐Interest—What Determines the Allocation of Aid?," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 237-250, 05.
  12. Nunnenkamp, Peter & Öhler, Hannes & Sosa Andrés, Maximiliano, 2012. "Need, merit, and politics in multilateral aid allocation: A district-level analysis of World Bank projects in India," Kiel Working Papers 1783, Kiel Institute for the World Economy (IfW).
  13. David Fielding, 2010. "Inertia and Herding in Humanitarian Aid Decisions," Working Papers 1009, University of Otago, Department of Economics, revised Aug 2010.
  14. Stijn Claessens & Danny Cassimon & Bjorn Van Campenhout, 2009. "Evidence on Changes in Aid Allocation Criteria," World Bank Economic Review, World Bank Group, vol. 23(2), pages 185-208, June.
  15. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  16. Eric Neumayer, 2003. "Do Human Rights Matter in Bilateral Aid Allocation? A Quantitative Analysis of 21 Donor Countries," Social Science Quarterly, Southwestern Social Science Association, vol. 84(3), pages 650-666.
  17. Anne Boschini & Anders Olofsgård, 2007. "Foreign aid: An instrument for fighting communism?," Journal of Development Studies, Taylor & Francis Journals, vol. 43(4), pages 622-648.
  18. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
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