Why Untie Aid? An Empirical Analysis of the Determinants of South Korea's Untied Aid from 2010 to 2013

Abstract

As untying aid was widely considered key to enhancing aid effectiveness, the South Korean government decided to increase the share of untied aid. While the share increased substantially in recent years, considerable variation exists in the proportion of untied aid provided to different recipient countries. This article explores the reasons why. We identify three key variables: international factors, economic interests and recipient country governance. By analysing South Korea's aid data for the period 2010-2013, we find that Korea's aid-untying practice is affected by international norms and the recipient country's governance, but not by peer pressure and economic interests.

Policy and Practice in Oda Disbursements: An Analysis of Changes in South Korea's Official Development Assistance

“…South Korea's ODA programs have been administered by more than one government agency (OECD 2012;Kim 2016;Chung, Eom, and Jung 2016;MOFAT 2012). The first of these was the Ministry of Foreign Affairs and Trade (MOFAT), which was charged with overseeing South Korea's ODA programs to ensure that they were conducted in accordance with all applicable laws as well as with Seoul's diplomatic and security priorities.…”

“…7 South Korean officials would continue to use the country's own development experience to help donors better understand the development concerns of recipient nations and help ensure that ODA distributions effectively promoted economic development in recipient nations. Nonetheless, these same officials put forth a series of reforms that ultimately altered their own practices (Chung, Eom, and Jung 2016;Chun, Munyi, and Lee 2010). The ideas that led to these reforms have been captured in a series of policy documents that spelled out clearly how South Korea's ODA practices needed to change if it were to convince donor nations that it was committed to balanced and sustainable economic growth in recipient nations (Sohn and Yoo 2015).…”

Multilateral Foreign Aid, Bilateral Foreign Aid, and Foreign Direct Investment in Latin America

“…The multilateral donors are often viewed as politically neutral, allowing them to leverage their aid funds to demand that the recipient countries undertake greater institutional reforms and effectively utilize aid money in legitimate development projects. Additionally, due to the many years of experience of supporting numerous development projects in developing countries all over the world, the multilateral donors enjoy economies of scale visà-vis the bilateral donors (Alesina and Dollar 2000, Burnside and Dollar 2000, Addison et al, 2015, and Chung et al, 2015.…”

Relative Effectiveness of Bilateral and Multilateral Aid on Development Outcomes

“…However, critics argue that the continued practice of “tying” bilateral aid, often in the form of restrictions requiring aid funds be used to purchase goods from the donor country, can reduce the value of aid to recipients (Clay et al., ; OECD, ). Others note that the strategic or geopolitical orientation of aid delivered through bilateral channels (Barder, ; Berthélemy, ; Clay et al., ; Chung et al., ; Fleck and Kilby, ; Rodrik, ) and greater fragmentation of bilateral aid (Acharya et al., ; Addison et al., ; Barder, ; Houerou, ; OECD, ) might also decrease cost‐effectiveness. That said, several authors contend that direct accountability to donors (Barder, ), combined with bilateral donors’ institutional compatibility with recipient countries where they have long‐standing historical relationships (Cassen, ), and the greater volumes of aid disbursed by bilateral donors (Kharas, ; OECD, ) all serve to increase bilateral aid cost‐effectiveness relative to multilateral aid.…”