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Donor Competition for Aid Impact, and Aid Fragmentation

Author

Listed:
  • Kurt Annen
  • Luc Moers
Abstract
We show that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium. This aid fragmentation result is robust to the introduction of fixed costs, even if they are improbably large. In equilibrium, smaller donors have less fragmented aid, and behave better from an efficiency viewpoint. We present evidence that our theoretical results are in line with cross-country correlations. Our analysis has important policy implications: First, short of ending donors' maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Second, since policies to increase donor competition in terms of aid effectiveness risk reinforcing relativeness, they may well backfire, as any such reinforcement increases aid fragmentation.

Suggested Citation

  • Kurt Annen & Luc Moers, 2017. "Donor Competition for Aid Impact, and Aid Fragmentation," The World Bank Economic Review, World Bank, vol. 31(3), pages 708-729.
    • Handle: RePEc:oup:wbecrv:v:31:y:2017:i:3:p:708-729.
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    File URL: http://hdl.handle.net/10.1093/wber/lhw019
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    Cited by:

    1. Manabu Nose, 2022. "Decentralized provision of disaster aid: aid fragmentation and the poverty implications," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1098-1127, October.
    2. Furukawa, Mitsuaki, 2014. "Aid Fragmentation and Effectiveness for Infant and Child Mortality and Primary School Completion," Working Papers 83, JICA Research Institute.
    3. Iliana Olivié & Aitor Pérez, 2016. "Why don’t donor countries coordinate their aid? A case study of European donors in Morocco," Progress in Development Studies, , vol. 16(1), pages 52-64, January.
    4. Nathalie Ferrière, 2016. "To give or not to give? How do donors react to European food aid allocation?," Working Papers halshs-01405130, HAL.
    5. Nathalie Ferrière, 2022. "To Give or Not to Give? How Do Other Donors React to European Food Aid Allocation?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(1), pages 147-171, February.
    6. Temple, Jonathan & Van de Sijpe, Nicolas, 2017. "Foreign aid and domestic absorption," Journal of International Economics, Elsevier, vol. 108(C), pages 431-443.
    7. Carter, Patrick & Van de Sijpe, Nicolas & Calel, Raphael, 2021. "The elusive quest for additionality," World Development, Elsevier, vol. 141(C).
    8. Knack, Stephen & Xu, Lixin Colin & Zou, Ben, 2014. "Interactions among donors'aid allocations : evidence from an exogenous World Bank income threshold," Policy Research Working Paper Series 7039, The World Bank.
    9. Carlitz, Ruth D. & Ziaja, Sebastian, 2021. "Dissecting aid fragmentation: Development goals and levels of analysis," IDOS Discussion Papers 17/2021, German Institute of Development and Sustainability (IDOS).
    10. Annen, Kurt & Strickland, Scott, 2017. "Global samaritans? Donor election cycles and the allocation of humanitarian aid," European Economic Review, Elsevier, vol. 96(C), pages 38-47.
    11. Annen, Kurt & Knack, Stephen, 2018. "On the delegation of aid implementation to multilateral agencies," Journal of Development Economics, Elsevier, vol. 133(C), pages 295-305.
    12. Furukawa, Mitsuaki & Mikami, Satoru, 2014. "Is Country-system-based Aid Really Better than Project-based Aid? Evidence from Rural Water Supply Management in Uganda," Working Papers 64, JICA Research Institute.
    13. Michael G. Findley & Helen V. Milner & Daniel L. Nielson, 2017. "The choice among aid donors: The effects of multilateral vs. bilateral aid on recipient behavioral support," The Review of International Organizations, Springer, vol. 12(2), pages 307-334, June.
    14. Kurt Annen & Stephen Kosempel, 2018. "Why Aid-to-GDP Ratios?," Working Papers 1801, University of Guelph, Department of Economics and Finance.
    15. Abrams M. E. Tagem, 2023. "The dynamic effects of aid and taxes on government spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1656-1687, December.
    16. Andrew W. Horowitz & Raja Kali & Hongwei Song, 2021. "Rethinking the aid–growth relationship: A network approach," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 359-380, February.
    17. Alain Le Roy & Jean-Michel Severino, 2023. "Diversification and fragmentation of public financing for development WP321," Working Papers hal-04121908, HAL.

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    More about this item

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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