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Herding in Aid Allocation

  • Emmanuel Frot
  • Javier Santiso

Aid ineffectiveness, fragmentation, and volatility have already been highlighted by scholars and OECD studies. Far fewer studies have been devoted to another problem of capital flows: herding behaviour. Building upon a methodology applied to financial markets, where herding is a common feature, this article attempts to measure herding behaviour in the allocation of foreign aid, proposing different indexes that try to capture the specific features of aid allocation. Of course, herding can also be beneficial. When a country faces an earthquake, a tsunami, or any humanitarian disaster, the rush of donors is a positive factor. Excluding such cases of beneficial herding, we attempt to focus on pure herding behaviour, creating pendulum swing effects comparable to those in financial markets. . Our different indexes all detect donor herding, its exact size depending on the measure adopted. Our preferred index, relying on threeyear disbursements, indicates a significant level of herding, similar to that which is found on financial markets. We also uncover major differences across different types of donors, with no, or very limited, herding among multilateral donors, in contrast to bilateral donors, always subject to herding behaviour. We then follow by investigating the empirical causes of herding. We find that while political transitions away from democracy are accompanied by herding out, transitions towards democracy do not affect herding levels. Finally, we show that observable determinants actually explain little of the herding levels, leaving a large part of herding unexplained. L’inefficacité, la fragmentation et la volatilité de l’aide au développement ont été souvent soulignées dans les travaux académiques comme dans ceux de l’OCDE. Un autre écueil relatif aux flux de capitaux a été beaucoup moins étudié : les comportements moutonniers. Cet article évalue ce comportement dans l’allocation de l’aide. Il s’inspire d’une méthodologie proche de celle utilisée pour les marchés financiers et propose différents indices qui prennent en compte les caractéristiques de l’allocation de l’aide au développement. Nous avons tenté ici de nous concentrer sur les purs évènements moutonniers, en excluant les comportements mimétiques bénéfiques, liés aux afflux d’aide qui suivent les tremblements de terre, des tsunamis ou autres désastres humanitaires : dans de tels cas, le suivisme des donateurs est bénéfique. Peux-t-on pour autant, à l’exclusion de ces cas, détecter des comportements moutonniers des donateurs, qui amplifieraient les mouvements de balanciers des flux, comparables à ce que l’on rencontre dans les marchés financiers ? Nos différents indices détectent tous la présence de comportements moutonniers au sein des donateurs. La magnitude exacte de ces comportements dépend de l’indice utilisé. Notre mesure préférée, basée sur les déboursements tri-annuels, indique des niveaux de comportement moutonnier similaires à ceux trouvés sur les marchés financiers. Nous mettons aussi en évidence d’importantes différences entre les types de donateurs. Le comportement moutonnier n’existe pas, ou très peu, entre les organisations multilatérales, tandis qu’il est présent entre les donateurs bilatéraux. Nous estimons ensuite empiriquement les causes du comportement moutonnier. Nous établissons que les transitions politiques vers moins de démocratie repoussent les pays donateurs de manière coordonnée. Au contraire, les transitions vers plus de démocratie ne modifient pas simultanément les décisions d’allocation de plusieurs donateurs. Enfin, nous montrons que les variables influençant les comportements moutonniers n’en expliquent qu’une faible partie. Il reste donc que la majeure partie de ces comportements reste inexpliquée.

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Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 279.

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Date of creation: 15 Jul 2009
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Handle: RePEc:oec:devaaa:279-en
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  2. Javier Rodríguez & Javier Santiso, 2007. "Banking on Development: Private Banks ans Aid Donors in Developing Countries," OECD Development Centre Working Papers 263, OECD Publishing.
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  18. Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
  19. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
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