The Needy Donor: An Empirical Analysis of India’s Aid Motives
University of Heidelberg Department of Economics Discussion Paper Series No. 532
41 Pages Posted: 7 Sep 2012
Date Written: July 18, 2012
It is puzzling that India, which has a large domestic constituency of people suffering from underdevelopment, chronic poverty and mal-governance, is emerging as an important aid donor. With the intension of understanding why poor countries provide foreign aid, this article is the first to econometrically analyze India’s aid allocation decisions. First, we utilize cross-sectional data on aid commitments by the Ministry of External Affairs to 125 developing countries, obtained in US dollars from AidData for the 2008-2010 period. Second, we compare India’s aid allocation with that of other donors. Our findings show that India’s aid allocation is partially in line with our expectations of the behavior of a “needy” donor. Commercial and political self-interests dominate India’s aid allocation. We find the importance of political interests to be significantly larger for India than for all donors of the Development Assistance Committee. Moreover, we find that countries which are closer geographically are favored, and that countries at a similar developmental stage are more likely to enter India’s aid program.
Keywords: Foreign aid, New donors, Aid allocation, South-South Cooperation, India
JEL Classification: F35
Suggested Citation: Suggested Citation