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.
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- Knack, Stephen & Rahman, Aminur, 2007.
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"Aid quality and donor rankings,"
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5290, The World Bank.
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- Emmanuel Frot & Javier Santiso, 2011.
"Herding in Aid Allocation,"
Wiley Blackwell, vol. 64(1), pages 54-74, 02.
- Emmanuel Frot & Javier Santiso, 2009. "Herding in Aid Allocation," OECD Development Centre Working Papers 279, OECD Publishing.
- Frot, Emmanuel & Santiso, Javier, 2009. "Herding in Aid Allocation," SITE Working Paper Series 5, Stockholm Institute of Transition Economics, Stockholm School of Economics, revised 02 Oct 2009.
- 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.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting chickens when they hatch: The short-term effect of aid on growth,"
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
- 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.
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