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Why aid is unpredictable: An empirical analysis of the gap between actual and planned aid flows

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  • Canavire-Bacarreza, Gustavo Javier
  • Neumayer, Eric
  • Nunnenkamp, Peter

Abstract

Aid flows continue to be volatile and unpredictable, even though it is widely accepted that this erodes the effectiveness of foreign aid. We argue that fragmented donor-recipient relationships, notably the large number of minor aid relations that tend to be associated with donors' desire to have 'fly their flag' around the world, increase aid unpredictability. Our empirical analysis of the determinants of aid unpredictability suggests that aid becomes less predictable with more fragmented donor-recipient relationships. Specifically, the effect of fragmentation on overshooting previous spending plans is statistically highly significant and substantively important. In contrast, fragmented donor-recipient relationships have no effect on the shortfall of actual aid compared to donors' spending plans.

Suggested Citation

  • Canavire-Bacarreza, Gustavo Javier & Neumayer, Eric & Nunnenkamp, Peter, 2014. "Why aid is unpredictable: An empirical analysis of the gap between actual and planned aid flows," Kiel Working Papers 1933, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:1933
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    References listed on IDEAS

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    1. Barthel, Fabian & Neumayer, Eric & Nunnenkamp, Peter & Selaya, Pablo, 2014. "Competition for Export Markets and the Allocation of Foreign Aid: The Role of Spatial Dependence among Donor Countries," World Development, Elsevier, vol. 64(C), pages 350-365.
    2. Oya Celasun & Jan Walliser, 2008. "Predictability of aid: Do fickle donors undermine aid effectiveness?," Economic Policy, CEPR;CES;MSH, vol. 23, pages 545-594, July.
    3. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, pages 176-197.
    4. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
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    6. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
    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.
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    14. 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.
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    Cited by:

    1. Fløgstad, Cathrin & Hagen, Rune Jansen, 2017. "Aid Dispersion: Measurement in Principle and Practice," World Development, Elsevier, pages 232-250.

    More about this item

    Keywords

    aid predictability; donor fragmentation; forward spending plans;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid

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