Handbook on the Economics of Foreign Aid
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Handbook on the Economics of Foreign Aid

Edited by B. Mak Arvin and Byron Lew

It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances. Several contributions provide new analytical insights or empirical evidence on different aspects of aid. As a whole, the book demonstrate how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.
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Chapter 4: Determining aid allocation decision-making: towards a comparative sectored approach

Caryn Peiffer and Constantine Boussalis


With the debate ongoing about its effectiveness, foreign aid can be described as one of the most expensive and long-lasting policy experiments ever conducted. One of the biggest challenges for researchers involved with assessing the effectiveness of foreign aid is how donor countries are driven by potentially many, if not competing, motivations behind aid allocations. It is problematic for claims to be made about how effective aid has been in realizing a donor country’s policy goals if, in fact, it is not clear what an aid donor is hoping to achieve by giving it. This paradox has influenced the rise of a parallel literature to that of aid effectiveness, which seeks to explain factors which determine variation in aid flows. Much of this large body of literature focuses on teasing out what motivates aid allocation decisions by systematically explaining why donors allocate foreign aid to certain countries and not to others. In doing so these studies have focused on addressing to what extent aid patterns are shaped by a recipient country’s need for aid, the political relationship between the donor and recipient governments, a donor’s commercial interests, and the likelihood of aid not being lost to corruption.

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