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  

Andreas Fuchs

Helmut Schmidt University Hamburg; Kiel Institute for the World Economy

Krishna Chaitanya Vadlamannati

University of Goettingen (Gottingen) - Department of Economics

Date Written: July 18, 2012

Abstract

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

Fuchs, Andreas and Vadlamannati, Krishna Chaitanya, The Needy Donor: An Empirical Analysis of India’s Aid Motives (July 18, 2012). University of Heidelberg Department of Economics Discussion Paper Series No. 532. Available at SSRN: https://ssrn.com/abstract=2140949 or http://dx.doi.org/10.2139/ssrn.2140949

Andreas Fuchs (Contact Author)

Helmut Schmidt University Hamburg ( email )

Holstenhofweg 85
Hamburg, 22043
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Krishna Chaitanya Vadlamannati

University of Goettingen (Gottingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

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