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Research and Communication on Foreign Aid

WP/04 Aid Supplies Over Time: Accounting for Heterogeneity, Trends, and Dynamics

The recent financial crisis has rekindled interest in the foreign aid supply behaviour of bilateral donors. Using the latest data covering the period 1960-2009, this paper examines how such behaviour is related to domestic factors. Based on a simple empirical model, a distinction is made between long-run supply trends and short-run dynamics, which motivates use of error correction methods. Panel econometric techniques are employed that are consistent in the presence of parameter heterogeneity and cross-section dependence. Results support the error correction framework, but point to very substantial heterogeneity between countries. There is also good evidence that donor behaviour continues to evolve over time. As such, past trends in aid supplies are unlikely to provide a good guide to those of the future.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2011/04
Title:
WP/04 Aid Supplies Over Time: Accounting for Heterogeneity, Trends, and Dynamics
Authors:
Sam Jones
Publication date:
January 2011
ISBN 13 Web:
978-92-9230-367-9
Copyright holder:
© UNU-WIDER
Copyright year:
2011
Keywords:
foreign aid, bilateral donors, panel data, error correction, heterogeneity
JEL:
F35, C23, F42
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development—DFID).
Format:
online
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