Aid allocation rules

Patrick Carter ()

European Economic Review, 2014, vol. 71, issue C, 132-151

Abstract: This paper studies an aid allocation rule used by major development agencies, and investigates optimal allocations when recipients are neoclassical economies undergoing transition dynamics. When recipients face aid absorption constraints, allocations that favor poorer recipients are not always optimal, contrary to what is assumed in assessments of donor performance. The most quantitatively significant factors that determine the optimal sensitivity to recipient characteristics are the generosity of the aid budget and the extent of absorption constraints. In neoclassical recipients, aid can only accelerate growth where there is already growth, so the optimal rule places little weight on growth and optimality is largely a matter of balancing recipient need against absorption constraints.

Keywords: Foreign aid; Allocation; Neoclassical growth model; Absorption constraints (search for similar items in EconPapers)
JEL-codes: F35 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (39)

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Working Paper: Aid Allocation Rules (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:71:y:2014:i:c:p:132-151

DOI: 10.1016/j.euroecorev.2014.07.004

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