Donor Competition for Aid Impact, and Aid Fragmentation
This paper shows that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium, explaining aid fragmentation. This equilibrium may be inefficient even without fixed costs, and the inefficiency increases in the equality of donors budgets. The paper presents empirical evidence consistent with theoretical results. These imply that, short of ending donors maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Moreover, since policies to increase donor competition in terms of aid effectiveness risk reinforcing relativeness, they may well backfire, as any such reinforcement increases aid fragmentation.
|Date of creation:||01 Aug 2012|
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References listed on IDEAS
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"Aid quality and donor rankings,"
Policy Research Working Paper Series
5290, The World Bank.
- William Easterly & Tobias Pfutze, 2008. "Where Does the Money Go? Best and Worst Practices in Foreign Aid," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 29-52, Spring.
- Kurt Annen & Stephen Kosempel, 2009.
"Foreign Aid, Donor Fragmentation, and Economic Growth,"
0914, University of Guelph, Department of Economics and Finance.
- Annen Kurt & Kosempel Stephen, 2009. "Foreign Aid, Donor Fragmentation, and Economic Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-32, August.
- Easterly, William & Williamson, Claudia R., 2011.
"Rhetoric versus reality: the best and worst of aid agency practices,"
39139, University Library of Munich, Germany.
- Easterly, William & Williamson, Claudia R., 2011. "Rhetoric versus Reality: The Best and Worst of Aid Agency Practices," World Development, Elsevier, vol. 39(11), pages 1930-1949.
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