Determinants of Donor Generosity: A Survey of the Aid Budget Literature

Abstract

Abstract:What determines the foreign aid effort of donor countries? We review the existing literature on donors' aid budgets and examine which of the suggested variables robustly determine aid effort, measured as Official Development Assistance (ODA) as a share of gross national income. More specifically, we empirically test 16 hypotheses using panel econometric methods for member countries of the Development Assistance Committee (DAC) in the 1976-2008 period. To test for the robustness of our results, we extend our dataset to 48 possible determinants of aid budgets and apply an Extreme Bounds Analysis (EBA). In our fixed effects regressions, we find that aid inertia, the donor country's GDP per capita, the existence of an independent aid agency, and colonial history have a robust and quantitatively relevant impact on countries' aid efforts. Among the potential substitutes for aid, remittances exert a robust effect. Excluding year fixed effects, political globalization, Russian military capacity, peer effects, aid effectiveness, and government debt also play a significant role.

Gesture Politics or Real Commitment? Gender Inequality and the Allocation of Aid

“…Reverse causality might challenge our results. To the extent that aid is effective, and continued to be allocated to the same country for some time, positive correlations between aid and outcomes might reflect the effectiveness of aid rather than badly targeted aid when aid budgets are sticky (see Fuchs, Dreher, & Nunnenkamp, 2014). Aid might be granted to reward countries that improved on gender-inequality indicators.…”

Remittances and the Effectiveness of Foreign Aid

“…1 However, it remains open to question whether donors could improve the effectiveness of aid by pursuing complementary and coherent policies. As argued by Fuchs et al (2014), foreign aid may be complemented or substituted by donor policies related to private financial flows, imports and exports of goods and services, and international migration. Here, we focus on the overall remittances paid by donor countries, as a proxy of (temporary) worker mobility and (more permanent) immigration, since the interaction between aid and remittances has received scant attention so far.…”

Responses to global challenges: trends in aid‐financed global public goods

“…The role of government's ideology on GPGs financing (H.6) is captured (set V) by the index of right-wing government ideology (logRight-wing) from the Database of Political Institutions (Beck et al 2001;Keefer and Stasavage, 2003). We do not form any prior on the possible direction of this effect (H.6) as even evidence for aid budget is inconclusive (Fuchs et al, 2012). The set V also includes the number of national victims considered as targets in terroristic attacks (logTerr), taken from the Global Terrorism Database, and the economic cost of disasters, taken from the EM_DAT database 19 (logDisaster).…”

“…Then, we try to interpret donors' demand for aid-funded GPGs, a largely unexplored issue. The analysis of the public good character of aid (Mosley, 1985;Fuchs et al, 2012) and the strategic interactions among donors (Mascarenhas and Sandler, 2006) provide us with insights when selecting the possible determinants. Our focus is, however, on testing GPGs' collective action problems.…”