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Donor Competition for Aid Impact, and Aid Fragmentation

Author: Mr.Kurt Annen

Publisher: International Monetary Fund

Published: 2012-08-01

Total Pages: 37

ISBN-13: 147550554X

This paper shows that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium, explaining aid fragmentation. This equilibrium may be inefficient even without fixed costs, and the inefficiency increases in the equality of donors budgets. The paper presents empirical evidence consistent with theoretical results. These imply that, short of ending donors maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Moreover, since policies to increase donor competition in terms of aid effectiveness risk reinforcing relativeness, they may well backfire, as any such reinforcement increases aid fragmentation.

Aid Tying and Donor Fragmentation

Author: Stephen Knack

Publisher:

Published: 2017

Total Pages: 29

ISBN-13:

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This study tests two opposing hypotheses about the impact of aid fragmentation on the practice of aid tying. In one, when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more aid to purchases from contractors based in their own countries. Alternatively, when donors have a larger share of the aid market, they may have stronger incentives to maximize the development impact of their aid by tying less of it. Empirical tests strongly and consistently support the latter hypothesis. The key finding -- that higher donor aid shares are associated with less aid tying -- is robust to recipient controls, donor fixed effects and instrumental variables estimation. When recipient countries are grouped by their scores on corruption perception indexes, higher shares of aid are significantly related to lower aid tying only in the less-corrupt sub-sample. This finding is consistent with the argument that aid tying can be an efficient response by donors when losses from corruption may rival or exceed losses from tying aid. When aid tying is more costly, as proxied by donor country size and income, it is less prevalent. Aid tying is lower in the Least Developed Countries, consistent with the OECD Development Assistance Committee's recommendation to its members.

Aid Tying and Donor Fragmentation

Author: Lodewijk Smets

Publisher:

Published: 2012

Total Pages: 29

ISBN-13:

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The Fragmentation of Aid

Author: Timo Casjen Mahn

Publisher: Springer

Published: 2016-08-31

Total Pages: 374

ISBN-13: 113755357X

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This edited volume provides an assessment of an increasingly fragmented aid system. Development cooperation is fundamentally changing its character in the wake of global economic and political transformations and an ongoing debate about what constitutes, and how best to achieve, global development. This also has important implications for the setup of the aid architecture. The increasing number of donors and other actors as well as goals and instruments has created an environment that is increasingly difficult to manoeuvre. Critics describe today's aid architecture as 'fragmented': inefficient, overly complex and rigid in adapting to the dynamic landscape of international cooperation. By analysing the actions of donors and new development actors, this book gives important insights into how and why the aid architecture has moved in this direction. The contributors also discuss the associated costs, but also potential benefits of a diverse aid system, and provide some concrete options for the way forward.

Donor Fragmentation and Bureaucratic Quality in Aid Recipients

Author: Stephen F. Knack

Publisher: World Bank Publications

Published: 2004

Total Pages: 32

ISBN-13:

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This paper analyzes the impact of donor fragmentation on the quality of government bureaucracy in aid-recipient nations. A formal model of a donor's decision to hire government administrators to manage donor-funded projects predicts that the number of administrators hired declines as the donor's share of other projects in the country increases, and as the donor's "altruism" (concern for the success of other donors' projects) increases. These hypotheses are supported by cross-country empirical tests using an index of bureaucratic quality available for aid-recipient nations over the 1982-2001 period. Declines in bureaucratic quality are associated with higher donor fragmentation (reflecting the presence of many donors, each with a small share of aid), and with smaller shares of aid coming from multilateral agencies, a proxy for donor "altruism." This paper--a product of Public Services, Development Research Group--is part of a larger effort in the group to identify ways in which donors inadvertently undermine institutional development in aid recipient countries.

Donor Fragmentation and Bureaucratic Quality in Aid Recipients

Author: Stephen Knack

Publisher:

Published: 2016

Total Pages: 32

ISBN-13:

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This paper analyzes the impact of donor fragmentation on the quality of government bureaucracy in aid-recipient nations. A formal model of a donor's decision to hire government administrators to manage donor-funded projects predicts that the number of administrators hired declines as the donor's share of other projects in the country increases, and as the donor's altruism (concern for the success of other donors' projects) increases. These hypotheses are supported by cross-country empirical tests using an index of bureaucratic quality available for aid-recipient nations over the 1982-2001 period. Declines in bureaucratic quality are associated with higher donor fragmentation (reflecting the presence of many donors, each with a small share of aid), and with smaller shares of aid coming from multilateral agencies, a proxy for donor altruism.This paper - a product of Public Services, Development Research Group - is part of a larger effort in the group to identify ways in which donors inadvertently undermine institutional development in aid recipient countries.

Diversity Trumps Quantity

Author: Sebastian Ziaja

Publisher:

Published: 2013

Total Pages: 0

ISBN-13:

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This paper investigates the effects of donor fragmentation on democratization. The presence of a large number of donors has been shown to impact negatively on bureaucracy quality and economic growth in the recipient country. But does donor fragmentation also affect democratization? I argue that the effect differs depending on the type of aid: Fragmented general aid has a negative impact on democratization, because it erodes some of the prerequisites of democracy. Fragmented democracy aid, however, has a positive impact on democratization, because diversity on the donor side provides choice to the multitude of local actors involved in the process, increasing the viability of resulting institutions. A highly concentrated donor community would lead to the imposition of an institutional blueprint, designed in advance and not adapted to the needs of the recipient society. These propositions are tested with data for 135 countries over the period 1990 to 2008. The temporal dynamics are examined with an error correction model. The causal mechanism is traced using the case of Ghana. Empirical evidence suggests that fragmented general aid indeed has a negative impact on democracy. But the presence of a large number of donors providing democracy aid has, contrary to common wisdom, a positive impact. This impact is independent of the amount of aid spent: The diversity of democracy aid trumps the quantity of democracy aid.

Foreign Aid and Recurrent Cost

Author: Yutaka Arimoto

Publisher:

Published: 2009

Total Pages: 0

ISBN-13:

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Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. The authors consider aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. They consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences for the success of their own projects over those conducted by others, they provide insufficient budget support relative to aid, which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.

Aid Fragmentation and Corruption

Author: Travers Child

Publisher:

Published: 2020

Total Pages: 41

ISBN-13:

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Effectiveness of development aid is widely perceived to suffer in the presence of multiple donors with overlapping responsibilities. We test existing theory on aid fragmentation by studying aid provision under numerous donors throughout Afghanistan from 2006-2009. Leveraging granular military data on aid, conflict, corruption, and public opinion, we conduct the first micro-level analysis of aid fragmentation. When delivered by a single donor, aid reduces conflict, curtails corruption, and boosts public opinion. But under donor fragmentation, the benefits of aid are significantly reduced. We are able to distinguish among various causal pathways underlying these heterogeneous effects. Our findings are robust to accounting for a battery of novel observable confounding factors as well as a computational bounding exercise used to assess potential bias arising from unobserved factors. Our evidence suggests fragmentation facilitates corruption and erodes the ability of development aid to win 'hearts and minds' in the fight against insurgents. This study yields potentially actionable insights about improving government policy and public welfare outcomes in fragile and weakly institutionalized settings.

Effects of Donor Proliferation in Development Aid for Health on Health Program Performance

Author: Jennifer Prah Ruger

Publisher:

Published: 2019

Total Pages:

ISBN-13:

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Development aid for health increased dramatically during the past two decades, raising concerns about inefficiency and lack of coherence among the growing number of global health donors. However, we lack a framework for how donor proliferation affects health program performance to inform theory-based evaluation of aid effectiveness policies. A review of academic and gray literature was conducted. Data were extracted from the literature sample on study design and evidence for hypothesized effects of donor proliferation on health program performance, which were iteratively grouped into categories and mapped into a new conceptual framework. In the framework, increases in the number of donors are hypothesized to increase inter-donor competition, transaction costs, donor poaching of recipient staff, recipient control over aid, and donor fragmentation, and to decrease donors' sense of accountability for overall development outcomes. There is mixed evidence on whether donor proliferation increases or decreases aid volume. These primary effects in turn affect donor innovation, information hoarding, and aid disbursement volatility, as well as recipient country health budget levels, human resource capacity, and corruption, and the determinants of health program performance. The net effect of donor proliferation on health will vary depending on the magnitude of the framework's competing effects in specific country settings. The conceptual framework provides a foundation for improving design of aid effectiveness practices to mitigate negative effects from donor proliferation while preserving its potential benefits.