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Need, Merit, or Self‐Interest—What Determines the Allocation of Aid?
Author(s) -
Hoeffler Anke,
Outram Verity
Publication year - 2011
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2011.00605.x
Subject(s) - ceteris paribus , economics , variance (accounting) , self interest , public economics , microeconomics , political science , law , accounting
Previous studies of aid allocation have concluded that foreign aid is allocated not only according to development needs but also according to donor self‐interest. We revisit this topic and allow for donor‐ as well as recipient‐specific effects in our analysis. In addition to comments on the statistical significance of our results we assess the relative economic importance of recipient need, merit, and donor self‐interest. Our results indicate that all bilateral donors allocate aid according to their self‐interest and recipient need. However, most bilateral donors seem to place little importance on recipient merit. Less than 1% of the variance of aid is accounted for by merit, ceteris paribus . The UK and Japan are exceptions: they allocate more aid to countries with higher growth, higher democracy scores, and fewer human rights abuses.