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

Courant Research Centre Discussion Paper No. 121

36 Pages Posted: 13 Sep 2012

See all articles by Andreas Fuchs

Andreas Fuchs

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; Kiel Institute for the World Economy

Axel Dreher

Heidelberg University

Peter Nunnenkamp

University of Kiel

Date Written: August 13, 2012

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.

Keywords: Foreign aid, Official Development Assistance, Aid budget, Extreme Bounds Analysis

JEL Classification: F35, H81, H87

Suggested Citation

Fuchs, Andreas and Dreher, Axel and Nunnenkamp, Peter, Determinants of Donor Generosity: A Survey of the Aid Budget Literature (August 13, 2012). Courant Research Centre Discussion Paper No. 121. Available at SSRN: https://ssrn.com/abstract=2145714 or http://dx.doi.org/10.2139/ssrn.2145714

Andreas Fuchs (Contact Author)

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Axel Dreher

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Peter Nunnenkamp

University of Kiel ( email )

D-24100 Kiel
Germany

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