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Determinants of Donor Generosity: A Survey of the Aid Budget Literature

Author

Listed:
  • Andreas Fuchs

    (Georg-August-University Göttingen)

  • Axel Dreher

    (Heidelberg University)

  • Peter Nunnenkamp

    (Kiel Institute for the World Economy)

Abstract

What determines the foreign aid effort of donor countries? We review the existing literature on donors’ aid budgets and examine which of the suggested variables robustly determine aid effort, measured as Official Development Assistance (ODA) as a share of gross national income. More specifically, we empirically test 16 hypotheses using panel econometric methods for member countries of the Development Assistance Committee (DAC) in the 1976-2008 period. To test for the robustness of our results, we extend our dataset to 48 possible determinants of aid budgets and apply an Extreme Bounds Analysis (EBA). In our fixed effects regressions, we find that aid inertia, the donor country’s GDP per capita, the existence of an independent aid agency, and colonial history have a robust and quantitatively relevant impact on countries’ aid efforts. Among the potential substitutes for aid, remittances exert a robust effect. Excluding year fixed effects, political globalization, Russian military capacity, peer effects, aid effectiveness, and government debt also play a significant role.

Suggested Citation

  • Andreas Fuchs & Axel Dreher & Peter Nunnenkamp, 2012. "Determinants of Donor Generosity: A Survey of the Aid Budget Literature," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 121, Courant Research Centre PEG.
    • Handle: RePEc:got:gotcrc:121
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    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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