Aid Delivery through Non‐governmental Organisations: Does the Aid Channel Matter for the Targeting of Swedish Aid?

This paper analyses whether aid channelled through non‐governmental organisations (NGOs) is less affected by selfish donor motivations and better targeted to needy recipient countries than aid distributed by state agencies. We employ Tobit (and Probit) models and make use of an exceptionally detailed database that allows an assessment of the allocation of Swedish aid channelled through NGOs in comparison to the allocation of Swedish official aid. Our analysis provides mixed results. On the one hand, NGOs appear to be altruistic as far as available indicators on political and commercial motivations of aid can tell. On the other hand, needs‐based targeting of aid by NGOs turns out to be surprisingly weak. GDP per capita of recipient countries shapes the allocation of official aid, but not that of aid channelled through NGOs. The headcount of absolute poverty has a significantly positive effect on aid allocation, but its impact is not particularly strong when NGOs are involved. Overall, the Swedish case supports the sceptical view that NGOs are not necessarily superior donors compared to state aid agencies.     

Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme

This study examines the effect of the ‘Everything But Arms’ (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU‐15 for the time period of 1995—2013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA‐eligible ACP countries to the EU‐15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.     

Donor Funding of Multilateral Aid Agencies: Determining Factors and Revealed Burden Sharing

This paper reports an empirical study of the factors affecting burden sharing among OECD's 22 DAC members in ‘bankrolling’ the multilateral aid agencies. Annual data over 1970–2000, pooled across the donor countries, form the basis for the empirical estimation of each donor's share in the ODA aid receipts for each multilateral agency. Our findings suggest the existence of reverse exploitation, i.e., the financial burden of the agencies is disproportionally carried by the smaller donors. The study also finds that factors such as inherent donor generosity, donor concern for domestic egalitarianism, and the extent to which donors are pro‐poor in their bilateral aid policies have an impact on their readiness to support multilateral agencies financially. Size of the donor government and its budgetary balance positively influence burden sharing of contributions to other multilateral agencies. But neither the phase of economic cycle nor the rate of economic growth affects the burden‐sharing responsibility of donors. It was also observed that contributions by EU members to the EC do not appear to crowd‐out their contributions to other multilateral aid agencies and that right‐wing donor governments are generally more parsimonious with regard to financial assistance to multilateral aid agencies. The preferred alternative, particularly among EU member countries, appears to be the EC.     

Why Donors of Foreign Aid Do Not Coordinate: The Role of Competition for Export Markets and Political Support

Development assistance has been criticised for a lack of coordination between aid donors. This paper argues that competition for export markets and political support prevents donor countries from coordinating their aid activities between one another. To test these hypotheses, we perform logit and fractional logit estimations for a large sample of recipient countries and aid activities since the early 1970s. Our empirical results reveal that export competition between donors is a major impediment to aid coordination. Although less conclusive, we also find some evidence that donors' competition over political support prevents them from coordinating aid activities more closely.     

The Dynamics of Aid and Political Rights

Using cross‐country panel data, we explore the extent to which the variation over time in measures of democracy and political rights can be explained by changes in aid inflows, thus providing direct evidence on the impact of innovations in donor policy on the quality of recipient governance. We distinguish between the short‐run and long‐run effects of changes in aid. Our results are very different from those based on cross‐country variation in aid inflows. We find evidence of large differences between the effect of aid for political reform and the effect of other types of aid in aggregate. These effects also depend on the recipient country's initial level of political development. There is no evidence that aid intended for political reform has achieved its objective, and in some countries, it may be counterproductive. However, aggregate aid can have a beneficial effect on political rights.     

Aid Selectivity According to Augmented Criteria

A dominant trend in the literature maintains that donor assistance should be targeted at poor countries with sound institutions and policies. In this context, donor selectivity refers to what extent aid is allocated according to the principles of this ‘canonical’ model. This paper shows that it is legitimate for donors to simultaneously use other selectivity criteria corresponding either to expected factors of aid effectiveness or to handicaps to development. It is notably argued that vulnerability to exogenous shocks and low level of human capital should be considered as selectivity criteria. Taking these other criteria into account dramatically changes the assessment of donor selectivity.     

Targeting Aid to the Needy and Deserving: Nothing But Promises?

By reallocating aid to where it is needed most and where a productive use is most likely, donors could help alleviate poverty in developing countries. The rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid. We assess the poverty and policy orientation of bilateral and multilateral aid in different ways. In addition to presenting stylised facts based on bivariate correlations, we apply a Tobit model that captures both altruistic and selfish donor motives. We find little evidence supporting the view that the targeting of aid has improved significantly. Most donors provide higher aid to relatively poor countries, but so far the fight against poverty has not resulted in a stronger focus on needy recipients with favourable local conditions. The estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured. In general, however, donors appear to be less policy‐oriented than poverty‐oriented. The response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak. We reject the proposition that multilateral aid is clearly superior to bilateral aid in terms of rewarding poor countries with better policies and institutions.     

Effects of aid for trade on extensive and intensive margins of greenfield FDI

Using a panel dataset of 105 developing countries for the period 2003–15, this paper assesses the effects of Aid for Trade (AfT) on greenfield FDI flows to the aid‐recipient countries. Particularly, this paper classifies the total dollar value of greenfield FDI flows to each recipient country in terms of four different layers: the extensive and intensive margins of projects as well as the extensive and intensive margins of source countries. Applying the system GMM estimator, this paper finds that AfT not only increases the dollar value of FDI flows to the recipient countries but also helps diversify the greenfield projects and source countries. In addition, this paper finds that AfT has a greater effect for greenfield FDI from donor (developed) countries than from non‐donor (developing) countries. Among the three components of AfT, aid for trade‐related infrastructure and aid for trade policy regulations are found to have positive links with greenfield FDI, irrespective of source‐country groups, yet their effects are larger for developed source countries. In contrast, aid for building productive capacity hinders greenfield FDI flows from non‐donor countries, while it promotes greenfield FDI from donor countries. We offer some explanations for this finding.     

Impacts of tangible and intangible elements of Aid for Trade on the globalisation of developing countries

The Aid for Trade initiative was launched by the WTO in 2005 to help developing countries build their supply-side capacity and trade-related infrastructure to improve their capacity in the global market. This study investigates the impacts of both the tangible and intangible elements of this initiative on the economic, social and political globalisation of recipient countries. Intangible elements of Aid for Trade (aid for trade policy and regulation) may be considered as the software of Aid for Trade, while tangible elements (aid for economic infrastructure and building productive capacity) are the hardware. Countries that receive Aid for Trade can use both types of elements to succeed in globalisation. This research hypothesises that the tangible elements of Aid for Trade have a singular effect on the overall level of globalisation since they are expected to only increase the level of economic globalisation. Moreover, we expect that the intangible elements of Aid for Trade will have multiple effects on the overall level of globalisation as they have an impact on not only economic aspects but also social and political aspects of it. Using the dataset of Aid for Trade from 2002 to 2015, we find that the intangible elements of Aid for Trade have increased the recipients' level of overall globalisation.     

Donors’ Mechanisms for Financing International and National Public Goods: Loans or Grants?

This paper investigates whether three classes of donors – multilateral organisations, regional institutions and bilateral donors – tailor their mix of grants and loans to reflect international benefit spillovers and recipient‐specific benefits, derived from aid‐funded activities in developing and transition countries. To account for recipient benefit shares, donors should use a greater share of grants when supported activities yield a larger portion of international public benefits. A greater reliance on loans is appropriate when a large portion of recipient‐specific benefits are associated with the assistance. By reflecting recipient benefit shares in the grant‐loan mix, donors’ assistance also promotes allocative efficiency. Using the Credit Reporting System (CRS) database from OECD for 1980–2000, our analysis establishes that various donor classes apply different grant‐loan mixtures when supporting the environment, health, knowledge and governance sectors of recipient countries. We employ analysis of variance and other statistical comparisons of the means to investigate differences among donor classes. We demonstrate that bilateral donors do the best job in tailoring their grant‐loan mix to accord with the extent of international public good benefits embodied in the aid‐supported activity. Multilateral organisations’ grant‐loan mix is intermediate of the three types of donors, with some evidence of them relying more on grants to finance activities that possess a larger share of international public good spillovers. Regional institutions, however, do not discriminate their grant‐loan mix by either sectors or the associated public good spillovers. This finding suggests that regional development banks need to adjust their grant‐loan mix to better account for international benefit spillovers if these institutions are to warrant the increased funds to underwrite regional public goods that they have been seeking. If, however, their mix is institutionally set, then the stakeholders must give these institutions greater flexibility to tailor their grants and loans to who benefits from the aid‐supported public goods. This is the first paper to empirically ascertain whether the grant‐loan mix is tied to the inherent publicness of the aid‐funded activities.     

Relative Trade Preferential Margin and Aid for Trade Allocation

This article investigates the interplay between non-reciprocal trade preferences and Aid for Trade (AfT) by examining the extent to which relative preferential margins (RPM) enjoyed by recipient countries affect AfT flows supplied by donors. The empirical results suggest that the RPM exerts a significant and positive impact on the bilateral AfT inflows that recipient countries enjoy from donors. In addition, when this impact is lower, the higher the recipient countries’ level of economic development. Furthermore, the analysis indicates that the influence of RPM on AfT is dependent on non-AfT (i.e., the aid flows allocated to the non-trade sector) allocated to recipient countries.     

Does Aid for Trade Enhance Export Performance? Investigating the Infrastructure Channel

There are few empirical studies assessing the effectiveness of aid for trade as regards trade performance. Furthermore, existing work does not test which are the channels through which aid for trade has an impact on trade performance. We address this question using a two‐step empirical analysis. Relying on an export performance model, we first test whether institutions and infrastructure, our two potential channels of transmission, are significant determinants of export performance. Second, we test the impact of aid for trade sectoral flows on the previously detected determinants of export performance. We show, as part of the first step, that the infrastructure channel is a highly significant determinant of export performance, whereas the institutional channel turns out to have a limited positive impact on developing countries’ export performance. Furthermore, we show, from the second step, that aid for infrastructure, once instrumented, has a strong and positive impact on the infrastructure level. As a result, we find that a ten per cent increase in aid for infrastructure commitments per capita in developing countries leads to an average 2.34 per cent increase in the exports over GDP ratio. It is also equivalent to a 2.71 per cent reduction in tariff and nontariff barriers. These results highlight the high potential impact of aid for trade on developing countries’ export performance throughout the infrastructure channel.     

Sweetening the Transition in EU Sugar Preferences: The Case of Fiji

The European Union grants preferential market access for sugar to a group of African, Caribbean and Pacific (ACP) countries. Sugar exported under these quotas receives between two and three times the world price. These trade preferences are intended as a form of aid, but they tend to stifle productivity growth in the recipient countries. The European Union could better assist ACP countries by providing direct development assistance in place of sugar subsidies, for example by investing the aid transfers into infrastructure or other essential public services. This paper tests this proposition for the case of Fiji using a computable general‐equilibrium model. It is found that significant gains in economic performance can be achieved by employing such alternative strategies for aid. These gains are particularly strong over the medium to long term when the aid funds are diverted to infrastructure development. However, there are issues of equity to consider since, in the case of Fiji, the rural poor would be the losers if trade preferences were to be removed. Moreover, the degree of benefit in alternative strategies such as infrastructure development will be contingent on the economy's flexibility, which in turn depends upon the country's regulatory regime and education performance.     

EU/ACP Economic Partnership Agreements: Impact, Options and Prerequisites

The EU and the African, Caribbean and Pacific countries (ACP) are presently renegotiating their trade relations. Behind these negotiations are the fundamental conflict between the existing arrangement and multilateral trade rules, the frustration regarding poor ACP trade performance, the ineffectiveness of trade and trade-related ACP policies, and the inefficiency of corresponding EU assistance. This article highlights the fundamentals of the envisaged Economic Partnership Agreements (EPAs) between the EU and the ACP countries, sums up previous estimates of their probable economic impact, discusses policy options for ACP countries and sheds light on basic prerequisites, particularly on institutional conditions, that should be fulfilled to ensure the success of EPAs.     

Conditionality and Aid Effectiveness Re‐evaluated

This paper evaluates aid by considering how effective aid has been in exerting leverage on policy choices. It is rather easy to demonstrate that if a country is unwilling to implement policy reforms, attaching conditions to aid will not ensure sustained reform. In this sense conditionality does not work. This ignores the fact that donors, through aid and conditions, can influence recipient policies. The argument of this paper is that if the analysis focuses on channels of influence, one can better identify ways to enhance aid effectiveness. Reform is a slow and difficult process and donors would be more effective ‘development partners’ if they see their role as being to support rather than force this process. In simple terms, donors should provide the information and technical assistance to help governments to make policy choices, rather than dictating choices by imposing conditions.     

Does aid for trade diversify the export structure of recipient countries?

The importance of aid for trade as a tool for facilitating trade, economic growth and social development has received attention since the concept was introduced in 2005. While one of the main targets of aid for trade is export diversification, reflecting the fact that the exports of many developing countries are concentrated in a small range of items, there have not been many efforts to measure the effect of aid for trade on export structure. This study, therefore, attempts to trace the relationship between aid for trade and 133 aid recipients' export structure between 1996 and 2013. Using the Herfindahl–Hirschman Index to measure the degree of export concentration, the findings suggest that total aid for trade has reduced the concentration level in the short run. In the long run, on the other hand, aid for trade has had no significant effect on export structure of recipient countries. Only aid for building productive capacity, which is one of the three categories of aid for trade, contributes to lower concentration. Yet, this change is not caused by an increase in export diversity but by the redistribution of shares of existing products of a similar sophistication level.     

Halving Poverty by Doubling Aid: Is There Reason for Optimism?

This paper criticises the World Bank as overly optimistic with respect to its ability to fine-tune development aid and to focus it on countries with ‘good’ policies rather than on countries with ‘poor’ policies in order to raise its effectiveness. It is shown that recipient regions showed very different patterns of aid inflows and economic growth in the past and that aid flows yielded the highest correlation to growth when their magnitudes shrank. It is furthermore argued that categorising countries by quality of domestic policies is not only questionable at a given point of time especially in countries with failing governmental institutions and open borders as in many African countries. It suffers also from incentive problems so that countries receiving more aid can become victims of changes in their domestic policies which are more permissive and etatist to the disadvantage of private agents. The paper instead pleads for a shift to aid policies decoupled from country-specifics and more oriented to fundamental ‘beyond border’ problems of the well-being of the poor. An international endowment fund under supranational law should finance research and implementation of research findings related to common international goods as it was suggested by Sachs concerning aids and tropical disease research.     

Reforming the International Financial System for Effective Aid Delivery

The role of the multilateral aid agencies in the delivery of aid is as old as the debate on the role of aid in economic development. Aid is effective in a good policy environment. However, effective aid delivery is equally important. This is why the need to reform the institutions involved in the process of delivering aid is crucial. Among others, the paper concluded that there is a need for redefining the roles and the establishment of a well articulated network among the various institutions involved in the aid process. More importantly, given the different actors and motives at play in the transfer of resources to recipient countries, the role of a supranational institution to coordinate and give direction is indispensable.     

Aid to agriculture,trade and structural change

This paper studies the effect on the industrialization process of developing countries of foreign aid given to agriculture to expand its productive capacity. According to our theoretical analysis, this effect is conditional on the openness of receiving countries. Our empirical results based on panel data for developing countries confirm this analysis, as we find that the effect of this kind of agricultural aid on the rate of growth of the industrial sector of landlocked countries is indeed positive.     

The effects of development aid on exports

Of what benefit cooperation with developing countries is in actual fact to the industrialized countries is a question which is receiving increasing attention in the discussions on development policy. In the present economic situation special interest attaches in this context of course to the repercussions of public development aid services on the export activities of enterprises in the donor countries. The following article is based on the findings of a study into “Job procurement through development aid credits and exports to developing countries“ (Arbeitsplatzsicherung durch Entwicklungshilfekredite und Exporte in Entwicklungsländer, Basle 1978) which was undertaken by the author together with Christel Bergmann on behalf of the Federal Ministry for Economic Cooperation.