The International Foreign Aid Regime: who gets foreign aid and how much?

Tanweer Akram, Columbia University, Dept. of Economics

Applied Economics, 2003, vol. 35*

*Akram, Tanweer. 2003. “The international Foreign Aid regime: who gets foreign aid and how much?” Applied Economics. 35, 1351-1356.

Stephanie Ogden

February 2009

Is the greatest amount of foreign aid being given to the countries with the greatest need?

* Is the disbursement of foreign aid tied directly to the needs of developing countries?

* Or, contrarily, is it tied to the interests of the donor countries?

The questions addressed

Data Source

2002 World Development Indicators Database

for the period:1960-2000

World Bank

Per country statistics for net official development assistance & net official aid

First steps in data analysis

*How much aid does each country receive?Volume of foreign aidPer capita foreign aid

*How dependent is a country on foreign aid? Foreign aid as a percentage of gross national income

as a percentage of central govt. expenditure

as a percentage of international trade

Methods of Data Analysis

Ordinary Least Squares (OLS)

Official foreign aid = β0 + β1(Log[Per capita income]) + β2(Log[Per capita income]2) + β3(Log[population]) + β4(Log[population]2) +…

General Least Squares (GLS) Per capita foreign aid = β0 + β1(Log[Per capita income]) + β2(Log[Per capita income]2) + ….

A Series of regression analyses over different time periods:

Sample Results

Ordinary Least Squares (OLS): for time period 1970 - 2000

Official foreign aid = β0 + 1.55(Log[Per capita income]) – 0.12(Log[Per capita income]2) + β3(Log[population]) + β4(Log[population]2) +…

Adjusted R2 = 0.45 All values significant beyond the 0.05 level

General Least Squares (GLS): for time period 1970 - 2000

Per capita foreign aid = β0+ 2.32(Log[Per capita income]) – 0.16 (Log[Per capita income]2) + ….

Adjusted R2 = 0.82

All values significant beyond the 0.05 level

• Official Foreign Aid to a country seems to increase as its per capita income increases, though this increase is less pronounced as the countries enter middle income status.

• Official Foreign Aid to a country increases as its population increases.

• Official Per Capita Foreign Aid to a country seems to increase as its per capita income increases, though this increase is less pronounced as the countries enter middle income status.

Results

Results & Policy Implications

The level of per capita income of a country does not seem to have any affect on the foreign aid received.

The poorest countries do not seem to be getting the most per capita foreign aid.

If the objective of foreign aid is to help countries most in need, we must re-examine the criteria by which foreign aid is dispersed.

http://commons.wikimedia.org/wiki/File:World_Bank_income_groups.png

Map of World Bank

Income Groupings,

2006