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Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation and Budget Support

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  • Yutaka ARIMOTO
  • Hisaki KONO

Abstract

Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. This paper considers aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. We consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences over the success of their own projects to those conducted by others, they provide insufficient budget support relative to aid which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.

Suggested Citation

  • Yutaka ARIMOTO & Hisaki KONO, 2007. "Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation and Budget Support," Discussion papers 07051, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:07051
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    Cited by:

    1. 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.
    2. Rahman, Aminur & Sawada, Yasuyuki, 2012. "Can donor coordination solve the aid proliferation problem?," Economics Letters, Elsevier, vol. 116(3), pages 609-612.
    3. 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.
    4. Fløgstad, Cathrin & Hagen, Rune Jansen, 2017. "Aid Dispersion: Measurement in Principle and Practice," World Development, Elsevier, vol. 97(C), pages 232-250.
    5. Han, Lu & Koenig-Archibugi, Mathias, 2015. "Aid Fragmentation or Aid Pluralism? The Effect of Multiple Donors on Child Survival in Developing Countries, 1990–2010," World Development, Elsevier, vol. 76(C), pages 344-358.
    6. Hartmann, Simon, 2011. "Political constraints on division of labor in development policy across countries: A proposal for a more viable coordination procedure at the EU level," Working Papers 28, Austrian Foundation for Development Research (ÖFSE).
    7. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
    8. Iliana Olivié & Aitor Pérez, 2016. "Why don’t donor countries coordinate their aid? A case study of European donors in Morocco," Progress in Development Studies, , vol. 16(1), pages 52-64, January.

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