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 7: Geographical allocation of aid: lessons from political economy

Sergio Tezanos Vázquez

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The allocation of ‘foreign public aid for development’ should be coherent with the officially proclaimed international development agenda (currently focused on reducing human poverty across developing countries). Although few policy-makers would publicly deny this assertion, the truth is that the debate on the ‘geopolitics of aid’ has been in force since the beginning of the aid system. Just a decade after the launch of the first aid programs, leading economists such as Gunnar Myrdal – later Nobel laureate – warned that the only way to allocate resources in a purely philanthropic way was to give up the ‘bilateralism’ of the aid system and to delegate the management of the resources in a single multilateral agency (Myrdal, 1956: 124). Indeed, if the international donor community shared the same ‘altruistic’ motivations, it would probably be enough to manage aid through a single multilateral agency. Nevertheless, the literature on the geographical distribution of official development assistance (ODA) suggests that donors do not allocate aid for purely altruistic reasons and thus they are not particularly consistent with their international development commitments. In reality, donors disburse aid in an ‘eclectic’ way so that developing countries with greater political, historical and cultural affinities with donors, as well as countries with greater economic and geo-strategic importance, receive more aid than other countries with similar – or greater – levels of developmental needs.

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