The Review of International Organizations

, Volume 7, Issue 3, pp 267–284 | Cite as

Selectivity on aid modality: Determinants of budget support from multilateral donors

Article

Abstract

Since the late 1990s a selection on policy approach to aid was advocated such that more aid should be allocated to countries with good policies, but there is little evidence that this has occurred. This paper argues that donors may exercise selectivity over the aid modality. Specifically, multilateral donors will cede more recipient control over aid by granting more budget support to those recipients with better expenditure systems and spending preferences (towards the poor) aligned with the donor. We test this for European Commission and World Bank budget support over 1997–2009 and find some support. Both donors have given budget support to almost half of the countries they give aid, and it is usually a significant share of their aid. The principal determinants of receiving budget support are having a poverty reduction strategy in place, which can be considered a good indicator of aligned preferences, and indicators of government efficiency. These variables did not, however, influence the amount of budget support given. Multilateral donors have been more likely to give budget support to countries with aligned spending preferences and better quality systems, even if they have not reallocated the total aid envelope in that way.

Keywords

Aid Modality Budget Support Project Aid Aid Selectivity 

JEL Classification

F35 O19 

Supplementary material

11558_2011_9137_MOESM1_ESM.pdf (279 kb)
ESM 1(PDF 278 kb)
11558_2011_9137_MOESM2_ESM.dta (283 kb)
ESM 2(DTA 283 kb)
11558_2011_9137_MOESM3_ESM.do (4 kb)
ESM 3(DO 4.32 kb)
11558_2011_9137_MOESM4_ESM.doc (390 kb)
ESM 4(DOC 390 kb)

References

  1. Andreoni, J. (1990). Impure altruism and donations to public goods: a theory of warm-glow giving. The Economic Journal, 100(401), 464–477.CrossRefGoogle Scholar
  2. Azam, J., & Laffont, J. (2003). Contracting for aid. Journal of Development Economics, 70(1), 25–58.CrossRefGoogle Scholar
  3. Booth, D., Christiansen, K., & de Renzio, P. (2006). Reconciling alignment and performance in budget support programs: What next? Chapter 10 in Koeberle et al. (eds), pp. 193–212.Google Scholar
  4. Bougheas, S., Dasgupta, I., & Morrissey, O. (2007). Tough love or unconditional charity? Oxford Economic Papers, 59(4), 561–582.CrossRefGoogle Scholar
  5. Cameron, A., & Trivedi, P. (2009). Microeconometrics using Stata. StataCorp LP.Google Scholar
  6. Clist, P. (2011). 25 years of aid allocation practice: whither selectivity? World Development (forthcoming).Google Scholar
  7. Collier, P., & Dollar, D. (2002). Aid allocation and poverty reduction. European Economic Review, 46(8), 1475–1500.CrossRefGoogle Scholar
  8. Cordella, T., & Dell'Ariccia, G. (2007). Budget support versus project aid: a theoretical appraisal. Economic Journal, 117(523), 1260–1279.CrossRefGoogle Scholar
  9. Directorate General for Development. (2006). European Commission budget support, Chapter 4 in Koeberle et al. (eds), pp. 81–89Google Scholar
  10. Factora, J. (2006). Poverty reduction support credits: A stocktaking. Chapter 3 in Koeberle et al. (eds), pp. 47–80Google Scholar
  11. Fafchamps, M., & Mintens, B. (1999). Relationships and traders in Madagascar. Journal of Development Studies, 35(6), 1–35.CrossRefGoogle Scholar
  12. Gomanee, K., Morrissey, O., Mosley, P., & Verschoor, A. (2005). Aid, government expenditure and aggregate welfare. World Development, 33(3), 355–370.CrossRefGoogle Scholar
  13. Hagen, R. (2006a). Buying influence: aid fungibility in a strategic perspective. Review of Development Economics, 10(2), 267–284.CrossRefGoogle Scholar
  14. Hagen, R. (2006b). Samaritan agents? On the strategic delegation of aid policy. Journal of Development Economics, 79(1), 249–263.CrossRefGoogle Scholar
  15. Hammond, M. (2006). A framework for evaluating general budget support. Chapter 5 in Koeberle et al. (eds), pp. 91–104Google Scholar
  16. Hout, W. (2007). The politics of aid selectivity: good governance criteria in World Bank, US and Dutch Development Assistance. Abingdon: Routledge.CrossRefGoogle Scholar
  17. IEG. (2009). The World Bank's country policy and institutional assessment, an evaluation. Washington, DC: Independent Evaluation Group (IEG) available at http://siteresources.worldbank.org/EXTCPIA/Resources/cpia_full.pdf.
  18. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues. World Bank Policy Research Working Paper No. 5430, Washington, DC: The World Bank.Google Scholar
  19. Kilby, C. (2009). The political economy of conditionality: an empirical analysis of World Bank loan disbursements. Journal of Development Economics, 89(1), 51–61.CrossRefGoogle Scholar
  20. Knack, S., & Eubank, N. (2009). Aid and trust in country systems. Washington DC: World Bank Policy Research Working Paper 5005.Google Scholar
  21. Koeberle, S., Stavreski, Z., & Walliser, J. (Eds.). (2006). Budget support as more effective aid? Recent experiences and emerging lessons. Washington, DC: World Bank.Google Scholar
  22. Laffont, J.-J., & Martimort, D. (2002). The theory of incentives. Princeton: Princeton University Press.Google Scholar
  23. Morrissey, O. (2004). Making debt-relief conditionality pro-poor. Chapter 12 in T Addison, Hansen, H & Tarp, F (eds), Debt Relief for Poor Countries, Basingstoke: Palgrave/WIDER, pp. 267–288Google Scholar
  24. Morrissey, O. (2006). Fungibility, Prior Actions, and Eligibility for Budget Support. Chapter 16 in Koeberle et al. (eds), pp. 333–350.Google Scholar
  25. Morrissey, O (2009). Aid and the Financing of Public Social Sector Spending. Chapter 6 in K. Hujo and S. McClanahan (eds), Financing Social Policy: Mobilizing Resources for Social Development, Basingstoke: Palgrave/UNRISD, pp. 141–162.Google Scholar
  26. Murrell, P (2002). The interaction of donors, contractors and recipients in implementing aid for institutional reform. Chapter 3 (pp 69–111) in Martens, B, Mummert, U, Murrell, P & Seabright, P, The institutional economics of foreign aid, Cambridge: Cambridge University Press.Google Scholar
  27. Nunnenkamp, P., & Thiele, R. (2006). Targeting aid to the needy and deserving: nothing but promises? The World Economy, 29(9), 1177–1201.CrossRefGoogle Scholar
  28. Svensson, J. (2000). When is foreign aid policy credible? Aid dependence and conditionality. Journal of Development Economics, 61(1), 61–84.CrossRefGoogle Scholar
  29. White, H., & Morrissey, O. (1997). Conditionality when donor and recipient preferences vary. Journal of International Development, 9(4), 497–505.CrossRefGoogle Scholar
  30. World Bank. (1998). Assessing aid: What works, what doesn’t and why? New York: Oxford University Press for the World Bank.Google Scholar
  31. World Bank. (2009). Poverty reduction support credits: An evaluation of World Bank support. Washington: Independent Evaluation Group of the World Bank.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.School of Economics, Sir Clive Granger BuildingUniversity of NottinghamNottinghamUK
  2. 2.Department of Economics, School of Social SciencesUniversity of ManchesterManchesterUK
  3. 3.School of International DevelopmentUniversity of East AngliaNorwichUK

Personalised recommendations