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Kill your darlings? Do new aid flows help achieve a poverty minimizing allocation of aid

Author

Listed:
  • Tengstam, Sven

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Isaksson, Ann-Sofie

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract
In this study, we derive a poverty-minimizing allocation rule, based on which we assess the poverty-efficiency of actual aid allocations, with a special focus on the comparative impact of new donors and new non-aid flows. The results suggest a substantial misallocation of aid. Our benchmark estimates indicate that donors should reallocate nearly half the total aid budget from aid darlings (countries receiving more aid than the allocation rule specifies) to aid orphans (countries receiving less aid than the allocation rule specifies). The estimated poverty-reducing efficiency varies considerably across donors. Whereas new global actors such as the Gates foundation perform well above average, the non-DAC bilateral donors perform clearly worse. Overall, neither the new donors nor the new financial flows alleviate the observed misallocation of aid. While the new donors stand for a non-negligible share of overall poverty reduction, together they perform below average in terms of poverty reduction per aid dollar. Similarly, rather than counteracting the relative neglect of countries identified as particularly underfunded in terms of aid, the non-aid financial flows add to the inequitable distribution. Based on an extensive battery of alternative model calibrations, we establish upper and lower bounds on our estimates, allowing for clear policy recommendations.

Suggested Citation

  • Tengstam, Sven & Isaksson, Ann-Sofie, 2021. "Kill your darlings? Do new aid flows help achieve a poverty minimizing allocation of aid," Working Papers in Economics 815, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0815
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    File URL: http://hdl.handle.net/2077/70180
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    References listed on IDEAS

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    1. World Bank, 2013. "The World Bank Annual Report 2013," World Bank Publications - Books, The World Bank Group, number 16091.
    2. Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," The World Bank Economic Review, World Bank, vol. 11(2), pages 357-382, May.
    3. World Bank, 2014. "The World Bank Annual Report 2014 [Informe anual 2014 del Banco Mundial]," World Bank Publications - Books, The World Bank Group, number 20093.
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    Cited by:

    1. José María Larrú & Carlos Quesada González, 2021. "Aid, Multidimensional Poverty and Growth: Reversing the Micro-Macro Paradox in Guinea, Liberia and Sierra Leone," Land, MDPI, vol. 11(1), pages 1-26, December.

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    More about this item

    Keywords

    Aid allocation; Poverty; Donors; Official development assistance; Other official flows;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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