Does Donor Selectivity in Aid Delivery Help the Poor?
58 Pages Posted: 19 Jul 2010 Last revised: 27 Feb 2011
Date Written: August 26, 2010
This paper explores the relationship between donor motivations and aid effectiveness, by analyzing donor decisions about how to deliver foreign development assistance. I argue that donor choices of delivery mechanisms are not random but a strategic response to the quality of recipient state institutions. State institutions of intermediate capacity generate condence in effective aid implementation among donors, encouraging them to deliver more aid directly through the recipient government. Weak state institutions, on the other hand, undermine donor condence in the effective use of aid. It is in these more fragile recipients that donors will seek out alternative development partners that allow them to forgo weak and corrupt state institutions and insulate the aid from government intervention. Given the range of non-state development partners, outcome-oriented donors choose the most eective alternative channel (or mix thereof) for bypass, thereby reducing the probability of aid capture and, simultane- ously, increasing the likelihood of aid success in poorly governed states. I show that donors systematically condition aid delivery on the quality of recipient institutions from 2004-2008. I also present evidence, after adjusting the data for donor selection eects through statistical matching, that bypass reduces poverty in poorly governed countries.
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