Targeted Development: Aid Allocation in an Increasingly Connected World
48 Pages Posted: 31 Oct 2015 Last revised: 12 Mar 2016
Date Written: March 11, 2016
The determinants of foreign aid allocation have shifted significantly. In the post-2001 period, aid allocation is consistent with donors pursuing a strategy of targeted development. Industrialized states are increasingly unable to insulate themselves from spillovers caused by underdevelopment abroad. Donors attempt to use aid to decrease these spillovers, targeting developing countries where the effects on the donor are anticipated to be large. Once a recipient is chosen, concerns for recipient government capacity guide the composition of aid. Targeted development emerges as an important, additional framework for understanding donor motivations, alongside traditional explanations of “donor interest” and “recipient need” that have dominated the aid allocation literature since the 1970s. Empirical analysis of aid allocation from 1973-2012 demonstrates that, while explanations based on security and economic ties to the donor explain allocation well in the cold war, the post-2001 period is best understood by incorporating a role for targeted development.
Keywords: foreign aid, aid allocation, development
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