Do Donors Target Aid in Line with the Millennium Development Goals? A Sector Perspective of Aid Allocation

Abstract

We analyse the aid portfolio of various bilateral and multilateral donors, testing whether they have prioritized aid in line with the Millennium Development Goals (MDGs). Employing Tobit models that combine sectorally disaggregated aid data with various indicators reflecting the situation of recipient countries with regard to the MDGs, we show that donors differ in the extent to which their sectoral aid allocation is conducive to achieving major MDGs. Some MDGs, notably the fight against HIV/AIDS, have shaped the allocation of aid. However, with respect to other MDGs such as primary education, there is a considerable gap between donor rhetoric and actual aid allocation. This invites the conclusion that the current focus on substantially increasing aid is unlikely to have the desired effects unless the targeting of aid is improved.

Does Aid for Education Educate Children? Evidence from Panel Data

“…The International Country Risk Guide, the Fraser index of economic freedom, and the mortality rate of children under age five serve as instruments. These variables-the first two proxies for governance, the third a proxy for needhave been shown to be related to aid allocations (McKinlay and Little 1977;Hout 2004;Thiele, Nunnenkamp, and Dreher 2007). They are indeed highly correlated with aid for education in the sample and not significantly correlated with school enrollment once the other relevant regressors are controlled for.…”

“…However, the evaluation of the composition of aid in Thiele, Nunnenkamp and Dreher (2007) suggests that this is unlikely to pose serious problems. In contrast to donor announcements, the shares of general budget support and multisector aid in total aid were actually lower in 2002-04 than in the early 1990s.…”

“…External donors may succeed at least partly in mitigating leakage and capture of aid funds by not channeling aid through the public budget of the recipient country, by involving local authorities in aid allocation processes, and by increasingly applying performance-based allocation rules. Measures such as these are recent, however; before the 1990 Jomtien Conference, which emphasized the importance of universal primary education, donor support concentrated on higher levels of education (Thiele, Nunnenkamp, and Dreher 2007). Consequently, it remains an empirical question whether foreign aid has been more effective than domestic public spending on education in promoting primary school enrollment.…”

“…Donors have committed themselves to helping countries achieve universal primary education by 2015 and eliminate gender disparities in education. To this end, donors have devoted an increasing share of aid resources to the education sector (Thiele, Nunnenkamp, and Dreher 2007).…”

The effect of foreign aid on income inequality: Evidence from panel cointegration

“…As a result, aid agencies might be inclined to 'plant their flag' and engage in highly visible projects in order to secure future funding. This may explain why Thiele et al (2007) find that various donors prefer granting aid for higher levels of education, but spend very little on primary education even though the MDGs require donors to concentrate on universal access to basic education as a pre-condition for pro-poor growth. Moreover, agencies that have to demonstrate success to political authorities can be expected to minimize the risk of project failure which weakens their incentive to operate in remote regions where aid may be needed most.…”