Aid effectiveness from a donor and from a recipient perspective
Final Report Abstract
The project aimed to further our understanding of the impact of aid. In particular, we investigated how different factors - such as political motives - influence the effectiveness of aid. Furthermore, we identified aid fragmentation and a lack of donor coordination as important factors impairing the effectiveness of aid. Going a step back, we analyzed which factors prevent donors from coordinating aid activities more closely. Finally, we examined the poverty-orientation of donors within recipient countries. The first objective of the project was to evaluate whether the provision of aid presents a win-win situation for both donor and recipient countries in terms of increased exports. Our empirical analysis shows that donors typically benefit from giving aid through increased exports whereas it does not show any evidence that the recipient countries' exports increase. The second objective was to assess the impact of aid on growth by identifying the long-run relationship between aid and per capita income. The results mostly show an insignificant impact of aid on the level of real GDP per capita. In the next step, we addressed the question whether politically motivated aid is less effective than aid given for humanitarian reasons. Our results show that aid committed while a recipient has been a member of the UN Security Council (UNSC) is less effective in terms of increased economic growth. Furthermore, we find that politically motivated World Bank aid projects are more likely to receive a negative ex-post performance rating from the Bank's Independent Evaluation Group in difficult times. We also looked at a different aspect of aid effectiveness, i.e., whether aid has been successful in inducing policy reforms in recipient countries. Our results show that ex-post conditionality (granting aid conditional on reforms in the past) has been successful in creating incentives for potential recipient countries to fight corruption. We also contributed to closing another important research gap in the aid literature by investigating the allocation of aid within recipient countries. In summary, we find no evidence of a poverty-oriented allocation of World Bank and African Development Bank projects within recipient countries. Instead, favoritism plays an important role in the regional allocation of projects. Another part of the project has been concerned with the fragmentation of aid and the coordination among donors. Our findings suggest that donor coordination is less important than common donor interests. In particular, we find that export competition between donors is a major impediment to aid coordination. Though less conclusive, there is also some evidence that donors' competition over political support prevents them from coordinating aid activities more closely.
Publications
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(2010). The impact of aid on growth revisited: Do donor motives matter? Economics Letters, 107(3): 338-340
Kilby, C. and Dreher, A.
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(2011). Does Conditionality Work? A Test for an Innovative US Aid Scheme. European Economic Review 56(1): 138-153
Ohler, H., Nunnenkamp, P. and Dreher, A.
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(2011). Throwing Foreign Aid at HIV/AIDS in Developing Countries: Missing the Target? World Development 39(10): 1704-1723
Nunnenkamp, P. and Ohler, H.
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(2012). Aid Allocation by Gennan NGOs: Does the Degree of Public Refinancing Matter? World Economy 35(11): 1448-1472
Dreher, A., Nunnenkamp, P., Thiel, S. and Thiele, R.
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(2012). Does foreign aid really raise per capita income? A time series perspective. Canadian Journal of Economics 45( 1): 288-313
Nowak-Lehmann D., F., Martinez-Zarzoso, I., Herzer, D., Klasen, S. and Dreher, A.
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(2012). Financial Dependence and Aid Allocation by Swiss NGOs: A Panel Tobit Analysis. Economic Development and Cultural Change 60, 4: 829-867
Dreher, A., Nunnenkamp, P., Ohler, H. and Weisser, J.
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(2013). Development (paradigm) failures. Journal of Development Economics 101(3): 63-74
Hodler, R. and Dreher, A.
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(2013). Does Foreign Aid Promote Recipient Exports to Donor Countries? Review of World Economics
Nowak-Lehmann D., F., Martinez-Zarzoso, I., Herzer, D., Klasen, S. and Cardozo, A.
