Understanding the Topological Properties of Foreign Aid: A Social Network Perspective

Abstract

Despite many decades of research, fundamental questions regarding foreign aid effectiveness and the motivation of donors remain unanswered. Since traditional analyses have not resolved these questions, I utilize social network theory to provide a new perspective on these questions. With this new approach, the foreign aid environment is modeled as a two-mode (affiliation) network consisting of links (aid relations) between two sets of actors (donors and recipients). This allows me to move the focus from monadic attributes of countries to dyadic attributes (e.g., social relations) of pairs of countries. Some network based measures are introduced and described in terms of the specific advantages they provide in capturing intricate relational attributes of the foreign aid system.

Individual statistics for each measure are computed using OECD foreign aid data. I explore the value of each measure to address questions related to donor motivation, changes in aid patterns following systemic shock, impact of aid structure on recipient economic growth. I revisit Rajan and Subramanian (2008) to study the relationship between recipients’ connectivity and their economic growth.

Keywords: foreign aid, development integration, two-mode network, economic growth

JEL Classification: O19, F35, D85, O40