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Multilateral Intermediation of Foreign Aid: What is the Trade-Off for Donor Countries?

  • Matteo Bobba
  • Andrew Powell

Why would bilateral donors intermediate aid through a multilateral and not extend aid directly? This paper suggests a trade-off: multiple bilateral donors for each recipient may imply coordination and strategic problems but intermediating through a multilateral may dilute individual donor objectives. The paper conducts traditional panel and truly bilateral regressions with bilateral-pair, fixed effects to model aid allocation decisions. The results confirm that politics is important for bilateral donors but also that aid fragmentation and strategic behavior affect aid allocation. Multilaterals solve strategic and coordination problems between donors and, while politics remains significant, there is some evidence for a dilution of this effect.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4500.

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Date of creation: Dec 2006
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Handle: RePEc:idb:wpaper:4500
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  1. Mark Gradstein & Alberto E. Chong, 2006. "Who's Afraid of Foreign Aid?: The Donors' Perspective," IDB Publications (Working Papers) 6706, Inter-American Development Bank.
  2. Trumbull, William N & Wall, Howard J, 1994. "Estimating Aid-Allocation Criteria with Panel Data," Economic Journal, Royal Economic Society, vol. 104(425), pages 876-82, July.
  3. Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
  4. Birdsall, Nancy & Claessens, Stijn & Diwan, Ishac, 2002. "Will HIPC Matter? The Debt Game and Donor Behaviour in Africa," CEPR Discussion Papers 3297, C.E.P.R. Discussion Papers.
  5. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  6. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
  7. David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers 89, Center for Global Development.
  8. Raul Hopkins & Andrew Powell & Amlan Roy & Christopher L. Gilbert, 1997. "The World Bank And Conditionality," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(4), pages 507-516.
  9. Torsvik, Gaute, 2005. "Foreign economic aid; should donors cooperate?," Journal of Development Economics, Elsevier, vol. 77(2), pages 503-515, August.
  10. Riccardo Faini & Enzo Grilli, 2004. "Who runs the IFIs?," Development Working Papers 191, Centro Studi Luca d\'Agliano, University of Milano.
  11. Gilbert, Christopher & Powell, Andrew & Vines, David, 1999. "Positioning the World Bank," Economic Journal, Royal Economic Society, vol. 109(459), pages F598-633, November.
  12. 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.
  13. Rodrik, Dani, 1995. "Why is there Multilateral Lending?," CEPR Discussion Papers 1207, C.E.P.R. Discussion Papers.
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