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Danish Aid Policy: Theory and Empirical Evidence

Finn Tarp (), Christian F. Bach, Henrik Hansen () and Søren Baunsgaard
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Christian F. Bach: University of Copenhagen Institute of Economics
Søren Baunsgaard: University of Copenhagen Institute of Economics

No 98-06, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper is a study of Danish aid policy from the early 1960s to 1995. It includes (i) a review of officially stated aims and criteria, (ii) a descriptive analysis of actual behaviour in international comparative perspective, (iii) a review of the theoretical and empirical aid allocation literature, and (iv) a series of panel data regressions to further explore how Danish bilateral aid was, in actual fact, distributed country-by-country. A theoretical model explaining how the allocation process took place is also formulated. It underpins the empirical analysis from which it transpires that a two step model is a useful way of analysing Danish aid allocations. The first step is whether to select a country or not, and the second involves the decision of how much aid to commit. The empirical analysis demonstrates that Danish aid has been guided in both steps by officially stated aims and criteria in an expected and statistically significant manner although a clear Eastern and Southern Africa bias was found. Another general result is that the relative weights of the explanatory variables have varied both from year-to-year and between sub-periods.

Keywords: Danish foreign aid; modelling aid allocation; panel data analysis (search for similar items in EconPapers)
JEL-codes: C33 F35 O10 (search for similar items in EconPapers)
Date: 1998-05
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Published in Gupta, K. (ed.): Foreign Aid: New Perspectives. Norwell MA,1999, pp 149-69

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