Kill your darlings? Do new aid flows help achieve a poverty minimizing allocation of aid

Sven Tengstam () and Ann-Sofie Isaksson
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Sven Tengstam: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden, https://economics.gu.se/

No 815, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: In this study, we derive a poverty-minimizing allocation rule, based on which we assess the poverty-efficiency of actual aid allocations, with a special focus on the comparative impact of new donors and new non-aid flows. The results suggest a substantial misallocation of aid. Our benchmark estimates indicate that donors should reallocate nearly half the total aid budget from aid darlings (countries receiving more aid than the allocation rule specifies) to aid orphans (countries receiving less aid than the allocation rule specifies). The estimated poverty-reducing efficiency varies considerably across donors. Whereas new global actors such as the Gates foundation perform well above average, the non-DAC bilateral donors perform clearly worse. Overall, neither the new donors nor the new financial flows alleviate the observed misallocation of aid. While the new donors stand for a non-negligible share of overall poverty reduction, together they perform below average in terms of poverty reduction per aid dollar. Similarly, rather than counteracting the relative neglect of countries identified as particularly underfunded in terms of aid, the non-aid financial flows add to the inequitable distribution. Based on an extensive battery of alternative model calibrations, we establish upper and lower bounds on our estimates, allowing for clear policy recommendations.

Keywords: Aid allocation; Poverty; Donors; Official development assistance; Other official flows (search for similar items in EconPapers)
JEL-codes: D63 E61 F35 O11 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2021-11
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (1)

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Working Paper: Kill Your Darlings? Do New Aid Flows Help Achieve a Poverty Minimizing Allocation of Aid? (2021)
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