The World Bank Economic Review Advance Access published online on June 3, 2009
The World Bank Economic Review, doi:10.1093/wber/lhp003
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Evidence on Changes in Aid Allocation Criteria
Correspondence: Stijn Claessens (corresponding author), International Monetary Fund (USA) and University of Amsterdam; his email address is sclaessens{at}imf.org
JEL codes: O11, O16, O19
Have donors changed their aid-allocation criteria over the past three decades toward greater selectivity, a frequently stated goal of the international development community? Using data on how 22 donors allocated their bilateral aid among 147 countries over 1970–2004, the article finds that after the fall of the Berlin wall in 1989 and especially in the late 1990s, bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries. Furthermore, the sensitivity of aid allocation to the country's size and its debt burden has declined over time. These results are robust to different samples and model specifications, various econometric techniques, and alternative measures of institutional quality. While the specific factors causing these changes cannot be identified—these presumably include geopolitical and economic concerns and the many changes in the international aid architecture—donors still differ greatly in their selectivity. This suggests that further, multifaceted reforms are needed to ensure even greater selectivity of aid.
Danny Cassimon, Institute of Development Policy and Management (IOB), University of Antwerp; his email address is danny.cassimon{at}ua.ac.be. Bjorn Van Campenhout, Institute of Development Policy and Management (IOB), University of Antwerp; his email address is bjorn.vancampenhout@ua.ac.be. The article was written in part while Claessens was at the World Bank. Earlier versions were presented at the GARNET conference, September 27–29, 2006, Amsterdam; two Economic and Social Research Council (ESRC) workshops (October 5/6, 2006 and May 2/3, 2007); the Oxford-Cornell conference New Directions in Development Assistance, Oxford, United Kingdom, June 11–12, 2007; and the ESRC/World Economy and Finance Research Programme (WEF) conference Finance and Development, London, June 27–29, 2007. The authors thank conference participants, especially Badi Baltagi, and discussant Adeel Malik, as well as Oya Celasun, Rodney Ramcharan, and Antonio Spilimbergo for their comments. They also thank the journal editor and three anonymous referees for their useful suggestions and Ying Lin for help in preparing the data. The work was supported by the ESRC/WEF program National and International Aspects of Financial Development (Award RES-156-25-0009). Additional results are available in the working paper version online at http://ssrn.com/abstract=997833 and at the journal website: http://wber.oxfordjournals.org/.