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 29: Donor competition for influence in recipient countries

Rachael Calleja and Dane Rowlands


For many poorer countries, official development assistance (ODA) from donors is a critical means of financing development programmes. Many low-income countries face meagre domestic savings bases and restricted opportunities for taxation, and thus have come to rely on capital inflows from abroad. While international private capital flows have expanded dramatically over the past 25 years, these remain heavily concentrated in only a few emerging market countries. Consequently, for many countries ODA remains important for financing capital accumulation, government expenditures and imports. As a result, ODA remains the focus of a considerable amount of research, which it has been for the past half century. One strand of this research on ODA consists of the many studies that have attempted to identify the factors that determine the allocation of development assistance. These studies typically use regression analysis to ascertain which recipient country characteristics are associated with greater or lesser ODA flows. One of the debates that this line of research has often addressed is that of donor motivation, with a focus on determining the relative importance of ‘recipient need’ and ‘donor interests’ in generating observed allocation patterns. Most key donors have been examined using this lens, though often without regard for the behaviour of other donors.

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