Aid Effectiveness: Revisiting the Trade-Off between Needs and Governance

42 Pages Posted: 11 Sep 2017

Date Written: September 2017


This paper aims at elucidating the issue of inter-country aid allocation by a single donor when the latter is sensitive to both needs and governance considerations and is moreover able to influence local governance through his own disciplining effort. In a one-donor-two-recipient framework and in conformity with observations from the real world, the poorer recipient country is assumed to be less well governed than the richer one. Many rich insights are gained from the analysis. In particular, the poorer and less well governed country is more likely to receive a higher share of aid if governance is endogenized through external disciplining by the donor. And the share of a country will always increase if it has succeeded in improving its internal governance, or discipline, thanks to its own effort. This is true even in the case where this effort leads to a fall of aggregate governance as a result of an overcompensating reaction of the donor when setting the level of external discipline. Finally, a decrease in the cost of external discipline will favor the poorer and less well governed country but only provided that the inter-country governance gap is large enough.

Keywords: aid allocation, Aid effectiveness, governance, Monitoring

JEL Classification: D02, D86, F35, O22

Suggested Citation

Bourguignon, Francois and Platteau, Jean‐Philippe, Aid Effectiveness: Revisiting the Trade-Off between Needs and Governance (September 2017). CEPR Discussion Paper No. DP12277, Available at SSRN:

Francois Bourguignon (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014

Jean‐Philippe Platteau

University of Namur ( email )

8 rempart de la vierge
Namur, 5000

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