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Coordination failure in foreign aid

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  • Halonen-Akatwijuka, Maija

Abstract

The author analyzes the allocation of foreign aid to various sectors in a recipient developing country. Donors tend to favor social sectors over other public expenditure programs. Due to incomplete information, donors may concentrate too much on priority sectors, leaving lower-priority yet important sectors lacking funds. Alternatively there may be gaps in services in priority areas because of the information problem. The author finds that the more similar preferences the donors have, the more scope there is for coordination failure. Therefore improving information is particularly important when the parties have similar priorities. A joint database on planned projects and budget allocations in each recipient country would provide such information. The author's point is that such databases should have both information on current projects and forward-looking information on the planned activities needed to improve aid coordination. She also analyzes the aid fungibility problem in an incomplete information setting and finds that incomplete information reduces the fungibility problem. On the other hand, incomplete information introduces coordination failure and the allocation can be inferior for both the recipient and the donor.

Suggested Citation

  • Halonen-Akatwijuka, Maija, 2004. "Coordination failure in foreign aid," Policy Research Working Paper Series 3223, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3223
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    References listed on IDEAS

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    1. repec:cup:apsrev:v:68:y:1974:i:02:p:707-716_11 is not listed on IDEAS
    2. 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.
    3. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    4. Kanbur, Ravi & Sandler, Todd & Morrison, Kevin, 1999. "The Future of Development Assistance: Common Pools and International Public Goods," Staff General Research Papers Archive 1629, Iowa State University, Department of Economics.
    5. Kemp, Murray C., 1984. "A note of the theory of international transfers," Economics Letters, Elsevier, vol. 14(2-3), pages 259-262.
    6. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    7. Martin McGuire, 1974. "Group size, group homo-geneity, and the aggregate provision of a pure public good under cournot behavior," Public Choice, Springer, vol. 18(1), pages 107-126, June.
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    Citations

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    Cited by:

    1. Leiderer, Stefan, 2013. "Donor Coordination for Effective Government Policies? Implementation of the New Aid Effectiveness Agenda in Health and Education in Zambia," WIDER Working Paper Series 049, World Institute for Development Economic Research (UNU-WIDER).
    2. Iñaki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2010. "Less aid proliferation and more donor coordination? The wide gap between words and deeds," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 920-940.
    3. repec:unu:wpaper:wp2012-69 is not listed on IDEAS
    4. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
    5. Stefan Leiderer, 2015. "Donor Coordination for Effective Government Policies?," Journal of International Development, John Wiley & Sons, Ltd., vol. 27(8), pages 1422-1445, November.
    6. Acharya, Arnab & Martínez-Álvarez, Melisa, 2012. "Aid Effectiveness in the Health Sector," WIDER Working Paper Series 069, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Environmental Economics&Policies; Public Health Promotion; Health Monitoring&Evaluation; Economic Adjustment and Lending; Agricultural Knowledge&Information Systems; Economic Adjustment and Lending; Environmental Economics&Policies; Health Monitoring&Evaluation; Health Economics&Finance; Agricultural Knowledge&Information Systems;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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