Working Paper: CEPR ID: DP13163
Authors: Jean-Philippe Platteau; François Bourguignon
Abstract: In this paper we revisit the problem of inter-country aid allocation with a single donor and two recipient countries. The donor has a given amount of aid to distribute and is sensitive to both needs and governance considerations. Conventional wisdom, as articulated in a well-known paper of Collier and Dollar (2002), holds that when a country improves its governance, it should receive more aid for a given level of poverty. We challenge this view by showing that this conclusion is not necessarily warranted. If the donor has strong enough aversion to poverty, the aid share of a country whose governance has improved will be reduced, thereby punishing instead of rewarding that country for its better institutional environment. Yet, the aid that reaches the poor will have risen. In this framework, the allocation rules actually used by important international organizations appear as implicitly based on a preference pattern that privileges governance over need considerations.
Keywords: aid allocation; poverty aversion; governance
JEL Codes: D02; D86; O22; F35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| improved governance (G38) | increased income for beneficiaries (H55) |
| increased income for beneficiaries (H55) | decreased need for aid (F35) |
| decreased need for aid (F35) | reduced aid share for the governance-improved country (F35) |
| improved governance (G38) | reduced aid share for the governance-improved country (F35) |