Targeting Aid to the Needy and Deserving: Nothing But Promises?

25 Pages Posted: 8 Sep 2006

See all articles by Peter Nunnenkamp

Peter Nunnenkamp

University of Kiel

Rainer Thiele

Kiel Institute for the World Economy

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Abstract

By reallocating aid to where it is needed most and where a productive use is most likely, donors could help alleviate poverty in developing countries. The rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid. We assess the poverty and policy orientation of bilateral and multilateral aid in different ways. In addition to presenting stylised facts based on bivariate correlations, we apply a Tobit model that captures both altruistic and selfish donor motives. We find little evidence supporting the view that the targeting of aid has improved significantly. Most donors provide higher aid to relatively poor countries, but so far the fight against poverty has not resulted in a stronger focus on needy recipients with favourable local conditions. The estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured. In general, however, donors appear to be less policy-oriented than poverty-oriented. The response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak. We reject the proposition that multilateral aid is clearly superior to bilateral aid in terms of rewarding poor countries with better policies and institutions.

Suggested Citation

Nunnenkamp, Peter and Thiele, Rainer, Targeting Aid to the Needy and Deserving: Nothing But Promises?. The World Economy, Vol. 29, No. 9, pp. 1177-1201, September 2006. Available at SSRN: https://ssrn.com/abstract=929201 or http://dx.doi.org/10.1111/j.1467-9701.2006.00836.x

Peter Nunnenkamp (Contact Author)

University of Kiel ( email )

D-24100 Kiel
Germany

Rainer Thiele

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany
+49 431 8814 215 (Phone)
+49 431 8814 500 (Fax)

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