Aid effort and its determinants

Abstract

The paper empirically explores the factors that could have accounted for the generally declining aid effort (defined as the generosity ratio, or the share of GDP given as aid) of bilateral donors over the last three decades. Annual panel data over 1970-2000 period for the 22 DAC members are used in a series of regressions. The findings suggest the existence of progressivity of aid in relation to donor income. There is also evidence of the economies of scale, in the sense that the share of aid in income decreases with growth in the size of donor country population. Domestic pro-poor tendency also appears to enhance donor generosity, and a positive 'peer pressure' effect is also observed. In addition, the extent of military adventurism of the donor is observed to have enhanced aid effort, just as also the size of government. But no discernible effect is detected for fiscal balance. On the political front, a greater number of checks and balances in the political system as well as the existence of polarization and fractionalization within the government are found to have enhanced aid effort while fractionalization within the opposition has the opposite effect. On the other hand, no discernible and consistent effect of ideological orientation of government is detected. Finally, the movement in the aid effort over time is found to differ between the G7 and non-G7 donors.

Determinants of Donor Generosity: A Survey of the Aid Budget Literature

“…Nevertheless, our fifth hypothesis predicts a negative impact of the donor countries' population size on their aid efforts. 6 Round and Odedokun (2004) argue that larger countries are able to exploit economies of scale, e.g., with regard to the administrative costs of aid, so that they could achieve specified objectives with less relative effort. Conversely, small countries might be more generous in relative terms if the supply of ODA is cost-effective only beyond a certain threshold.…”

“…relationship between government size and aid (Bertoli et al 2008;Round and Odedokun 2004), whereas conclusive evidence on domestic transfers and social spending as determinants of aid budgets does not exist (Table 1). Alternatively, Bertoli et al (2008: 11) propose using the Gini coefficient as "a proxy of domestic solidarity that may influence the attitude towards international redistribution" and find the expected negative effect on aid generosity.…”

“…As stressed by Round and Odedokun (2004), the effect of the general classification of governments on the size of aid budgets becomes more ambiguous once specific aspects of the executive branch and its relations with other branches of the political and institutional system are taken into account. For instance, Round and Odedokun expect the aid budget to increase when incongruent ideologies are represented within the government (e.g., coalition of parties in power), the opposition is strong, and the system of checks and balances involves Odedokun (2003, 2004).…”

“…Combining data on colonial linkages from CEPII (Mayer and Zignago 2006) Sixth and seventh, as in Round and Odedokun (2004), the share of military expenditure in the donor country's GDP and the share of military personnel in the donor country's labor force proxy for strategic interests that might be pursued through aid provision (World Bank 2009).…”

Determinants of Donor Generosity: A Survey of the Aid Budget Literature

“…Alternatively, Bertoli et al (2008: 11) propose using the Gini coefficient as "a proxy of domestic solidarity that may influence the attitude towards international redistribution" and find the expected negative effect on aid generosity. While their results for the Gini coefficient are ambiguous, Round and Odedokun (2004) also find that inequality impacts upon aid budgets if the Gini coefficient is replaced by the income share held by the poorest 20 percent of the population.…”