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Herding in Aid Allocation

Author

Listed:
  • Emmanuel Frot
  • Javier Santiso

    (OECD)

Abstract

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.

Suggested Citation

  • Emmanuel Frot & Javier Santiso, 2009. "Herding in Aid Allocation," OECD Development Centre Working Papers 279, OECD Publishing.
  • Handle: RePEc:oec:devaaa:279-en
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    File URL: http://dx.doi.org/10.1787/221460356758
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    References listed on IDEAS

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    Cited by:

    1. Ronald B. Davies & Stephan Klasen, 2013. "Of Donor Coordination, Free-Riding, Darlings, and Orphans: The Dependence of Bilateral Aid on Other Bilateral Giving," CESifo Working Paper Series 4177, CESifo Group Munich.
    2. repec:spr:revint:v:13:y:2018:i:3:d:10.1007_s11558-017-9280-5 is not listed on IDEAS
    3. Gustavo Javier Canavire‐Bacarreza & Eric Neumayer & Peter Nunnenkamp, 2015. "Why Aid is Unpredictable: An Empirical Analysis of the Gap Between Actual and Planned Aid Flows," Journal of International Development, John Wiley & Sons, Ltd., vol. 27(4), pages 440-463, 05-27.
    4. Stubbs, Thomas H. & Kentikelenis, Alexander E. & King, Lawrence P., 2016. "Catalyzing Aid? The IMF and Donor Behavior in Aid Allocation," World Development, Elsevier, vol. 78(C), pages 511-528.
    5. Sebastian Galiani & Stephen Knack & Lixin Colin Xu & Ben Zou, 2017. "The effect of aid on growth: evidence from a Quasi-experiment," Journal of Economic Growth, Springer, vol. 22(1), pages 1-33, March.
    6. Ortiz, Isabel, & Cummins, Matthew. & Karunanethy, Kalaivani., 2015. "Fiscal space for social protection and the SDGs options to expand social investments in 187 countries," ILO Working Papers 994877663402676, International Labour Organization.
    7. Peter Nunnenkamp & Hannes Öhler & Rainer Thiele, 2013. "Donor coordination and specialization: did the Paris Declaration make a difference?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 537-563, September.
    8. Hannes Öhler & Peter Nunnenkamp, 2014. "Needs-Based Targeting or Favoritism? The Regional Allocation of Multilateral Aid within Recipient Countries," Kyklos, Wiley Blackwell, vol. 67(3), pages 420-446, August.
    9. Isabel Ortiz & Jingqing Chai & Matthew Cummins, 2011. "Identifying Fiscal Space:Options for Social and Economic Development for Children and Poor Households in 184 Countries," Working papers 1108, UNICEF,Division of Policy and Strategy.
    10. Alessandro De Matteis, 2016. "Whose poverty really matters when deciding aid volumes?," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 12(1/2), pages 28-53.
    11. Juergen Bitzer & Erkan Goeren, 2018. "Foreign Aid and Subnational Development: A Grid Cell Analysis," Working Papers V-407-18, University of Oldenburg, Department of Economics, revised Mar 2018.
    12. Fuchs, Andreas & Dreher, Axel & Nunnenkamp, Peter, 2014. "Determinants of Donor Generosity: A Survey of the Aid Budget Literature," World Development, Elsevier, vol. 56(C), pages 172-199.
    13. repec:oup:wbecrv:v:31:y:2017:i:3:p:708-729. is not listed on IDEAS
    14. Molenaers, Nadia & Renard, Robrecht & Gagiano, Anna, 2013. "The Quest for Aid Complimentarity: Nordic+ Donors and NGO-cofunding Reforms," IOB Working Papers 2013.09, Universiteit Antwerpen, Institute of Development Policy (IOB).
    15. Bain, Robert & Bartram, Jamie & Luyendijk, Rolf, 2013. "Universal Access to Drinking Water: The Role of Aid," WIDER Working Paper Series 088, World Institute for Development Economic Research (UNU-WIDER).
    16. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
    17. Andreas Fuchs & Peter Nunnenkamp & Hannes Öhler, 2015. "Why Donors of Foreign Aid Do Not Coordinate: The Role of Competition for Export Markets and Political Support," The World Economy, Wiley Blackwell, vol. 38(2), pages 255-285, February.
    18. Öhler, Hannes, 2013. "Do Aid Donors Coordinate Within Recipient Countries?," Working Papers 539, University of Heidelberg, Department of Economics.
    19. Frot, Emmanuel & Olofsgård, Anders & Berlin, Maria Perrotta, 2014. "Aid Effectiveness in Times of Political Change: Lessons from the Post-Communist Transition," World Development, Elsevier, vol. 56(C), pages 127-138.
    20. Frey, Stefan & Herbst, Patrick & Walter, Andreas, 2014. "Measuring mutual fund herding – A structural approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 219-239.
    21. Daniele Pianeselli, 2016. "Does The one who pays the piper really call the tune? OECD and Chinese aid to infrastructure in Sub-Saharan Africa," Departmental Working Papers of Economics - University 'Roma Tre' 0204, Department of Economics - University Roma Tre.
    22. Kurt Annen & Luc Moers, 2017. "Donor Competition for Aid Impact, and Aid Fragmentation," World Bank Economic Review, World Bank Group, vol. 31(3), pages 708-729.
    23. Oscar Becerra & Eduardo Cavallo & Ilan Noy, 2010. "In the Aftermath of Large Natural Disasters, what happens to foreign aid?," Working Papers 201018, University of Hawaii at Manoa, Department of Economics.

    More about this item

    Keywords

    aid; aide; comportement moutonnier; fragmentation; fragmentation; herding; volatility; volatilité;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid

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