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Targeting aid to the needy and deserving : nothing but promises?

  • Nunnenkamp, Peter
  • Thiele, Rainer

By reallocating aid to where it is needed most and where a productive use is most likely, donors could help alleviate poverty in developing countries. The rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid. We assess the poverty and policy orientation of bilateral and multilateral aid in different ways. In addition to presenting stylized facts based on bivariate correlations, we apply a Tobit model that captures both altruistic and selfish donor motives. We find little evidence supporting the view that the targeting of aid has improved significantly. Most donors provide higher aid to relatively poor countries, but so far the fight against poverty has not resulted in a stronger focus on the most needy recipients. The estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured. Applying the widely used Kaufmann index on the quality of institutions, almost all donors failed to direct aid predominantly to where local conditions were conducive to a productive use of inflows. The response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak. In particular, we reject the proposition that multilateral aid is more targeted than bilateral aid in terms of rewarding poor countries with better policies and institutions.

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Paper provided by Kiel Institute for the World Economy (IfW) in its series Open Access Publications from Kiel Institute for the World Economy with number 3875.

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Date of creation: 2006
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Handle: RePEc:zbw:ifwkie:3875
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  1. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
  2. Berthelemy, Jean-Claude & Tichit, Ariane, 2002. "Bilateral Donors' Aid Allocation Decisions: A Three-dimensional Panel Analysis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. 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.
  4. Philipp Harms & Matthias Lutz, 2004. "The Macroeconomic Effects of Foreign Aid: A Survey," University of St. Gallen Department of Economics working paper series 2004 2004-11, Department of Economics, University of St. Gallen.
  5. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
  6. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423, June.
  7. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
  8. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers 23, Center for Global Development.
  9. Rati Ram, 2003. "Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries," Kyklos, Wiley Blackwell, vol. 56(1), pages 95-110, February.
  10. Oecd, 2002. "Aid volume, channels and allocations for poverty reduction," OECD Journal on Development, OECD Publishing, vol. 3(3), pages 33-46.
  11. Nunnenkamp, Peter, 2002. "IWF und Weltbank: trotz aller Mängel weiterhin gebraucht?," Kiel Discussion Papers 388, Kiel Institute for the World Economy (IfW).
  12. Peter Nunnenkamp, 2002. "Shooting the Messenger of Good News: A Critical Look at the World Bank's Success Story of Effective Aid," Kiel Working Papers 1103, Kiel Institute for the World Economy.
  13. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  14. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank.
  15. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
  16. Rolf J. Langhammer, 2004. "Halving Poverty by Doubling Aid: Is There Reason for Optimism?," The World Economy, Wiley Blackwell, vol. 27(1), pages 81-98, 01.
  17. McGillivray, Mark, 2003. "Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  18. Oecd, 2003. "Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations," OECD Journal on Development, OECD Publishing, vol. 4(3), pages 7-40.
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