Why Aid is Unpredictable: An Empirical Analysis of the Gap between Actual and Planned Aid Flows

Journal of International Development, 27 (4), 2015, pp. 440-463

40 Pages Posted: 6 Jan 2015 Last revised: 16 Nov 2015

See all articles by Gustavo J. Canavire-Bacarreza

Gustavo J. Canavire-Bacarreza

Inter-American Development Bank (IDB); IZA Institute of Labor Economics

Eric Neumayer

London School of Economics and Political Science (LSE)

Peter Nunnenkamp

University of Kiel

Date Written: January 5, 2015

Abstract

Aid flows continue to be volatile and unpredictable, even though it is widely accepted that this erodes the effectiveness of foreign aid. We argue that fragmented donor-recipient relationships, notably the large number of minor aid relations that tend to be associated with donors’ desire to ‘fly their flag’ around the world, increase aid unpredictability. Our empirical analysis of the determinants of aid unpredictability suggests that aid becomes less predictable with more fragmented donor-recipient relationships. Specifically, the effect of fragmentation on overshooting previous spending plans is statistically significant and substantively important. In contrast, fragmented donor-recipient relationships have no effect on the shortfall of actual aid compared to donors’ spending plans.

Keywords: aid predictability, donor fragmentation, forward spending plans

JEL Classification: F35

Suggested Citation

Canavire Bacarreza, Gustavo Javier and Neumayer, Eric and Nunnenkamp, Peter, Why Aid is Unpredictable: An Empirical Analysis of the Gap between Actual and Planned Aid Flows (January 5, 2015). Journal of International Development, 27 (4), 2015, pp. 440-463. Available at SSRN: https://ssrn.com/abstract=2545278

Gustavo Javier Canavire Bacarreza

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Eric Neumayer

London School of Economics and Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 207 955 7598 (Phone)
+44 207 955 7412 (Fax)

HOME PAGE: http://personal.lse.ac.uk/neumayer

Peter Nunnenkamp (Contact Author)

University of Kiel ( email )

D-24100 Kiel
Germany

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