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Aid tying and donor fragmentation

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  • Knack, Stephen
  • Smets, Lodewijk

Abstract

This study tests two opposing hypotheses about the impact of aid fragmentation on the practice of aid tying. In one, when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more aid to purchases from contractors based in their own countries. Alternatively, when donors have a larger share of the aid market, they may have stronger incentives to maximize the development impact of their aid by tying less of it. Empirical tests strongly and consistently support the latter hypothesis. The key finding -- that higher donor aid shares are associated with less aid tying -- is robust to recipient controls, donor fixed effects and instrumental variables estimation. When recipient countries are grouped by their scores on corruption perception indexes, higher shares of aid are significantly related to lower aid tying only in the less-corrupt sub-sample. This finding is consistent with the argument that aid tying can be an efficient response by donors when losses from corruption may rival or exceed losses from tying aid. When aid tying is more costly, as proxied by donor country size and income, it is less prevalent. Aid tying is lower in the Least Developed Countries, consistent with the OECD Development Assistance Committee's recommendation to its members.

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  • Knack, Stephen & Smets, Lodewijk, 2012. "Aid tying and donor fragmentation," Policy Research Working Paper Series 5934, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5934
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    References listed on IDEAS

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    1. repec:eee:wdevel:v:97:y:2017:i:c:p:232-250 is not listed on IDEAS
    2. Resnick, Danielle & Okumo, Austen, 2017. "Subnational Variation in Policy Implementation: The Case of Nigerian Land Governance Reform," Feed the Future Innovation Lab for Food Security Policy Research Papers 265412, Michigan State University, Department of Agricultural, Food, and Resource Economics, Feed the Future Innovation Lab for Food Security (FSP).
    3. Stephan Klingebiel & Mario Negre & Pedro Morazán, 2017. "Costs, Benefits and the Political Economy of Aid Coordination: The Case of the European Union," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 144-159, January.
    4. Aurore Gary & Audrey-Rose Menard, 2015. "Aid, Trade and Migration : How are OECD countries policies connected in times of crisis?," Working Papers of BETA 2015-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Auriol, Emmanuelle & Miquel-Florensa, Josepa, 2015. "Taxing Fragmented Aid to Improve Aid Efficiency," CEPR Discussion Papers 10802, C.E.P.R. Discussion Papers.
    6. Molenaers, Nadia & Dellepiane, Sebastian & Faust, Jorg, 2015. "Political Conditionality and Foreign Aid," World Development, Elsevier, vol. 75(C), pages 2-12.
    7. Molenaers, N. & Gagiano, A. & Smets, L. & Dellepiane, S., 2015. "What Determines the Suspension of Budget Support?," World Development, Elsevier, vol. 75(C), pages 62-73.
    8. repec:eee:socmed:v:206:y:2018:i:c:p:67-74 is not listed on IDEAS
    9. Fløgstad, Cathrin & Hagen, Rune Jansen, 2017. "Aid Dispersion: Measurement in Principle and Practice," World Development, Elsevier, vol. 97(C), pages 232-250.
    10. 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.
    11. Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series 6019, The World Bank.
    12. Han, Lu & Koenig-Archibugi, Mathias, 2015. "Aid Fragmentation or Aid Pluralism? The Effect of Multiple Donors on Child Survival in Developing Countries, 1990–2010," World Development, Elsevier, vol. 76(C), pages 344-358.
    13. repec:spr:revint:v:12:y:2017:i:2:d:10.1007_s11558-017-9275-2 is not listed on IDEAS

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    Keywords

    Gender and Health; Development Economics&Aid Effectiveness; Disability; School Health; Economic Theory&Research;

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