Aid Volatility: An Empirical Assessment

Abstract

This article examines empirical evidence on the volatility and uncertainty of aid flows and their main policy implications. Aid is found to be more volatile than fiscal revenues-particularly in highly aid-dependent countries-and shortfalls in aid and domestic revenue tend to coincide. The article also finds that uncertainty about aid disbursements is large and that the information content of commitments made by donors is either very small or statistically insignificant. Specific policies and broader international efforts to cope with these features of aid are briefly discussed.