Working Paper
Bilateral Donors' Aid Allocation Decisions

A Three-dimensional Panel Analysis

The present paper adds to the already large existing literature on aid distribution as it runs an equation on bilateral aid allocation on a very rich dataset, covering 20 years (1980-99), 22 donors and 137 recipients, which permits a three-dimensional panel study (recipient-year-donor) and allows for comparisons between the different donors. Thanks to the length of the observation period, it is also possible to compare aid allocation policy in the 1980s and in the 1990s to test whether the collapse of the communist regime affected the donors’ choices. Both the self-interest of donors, recipient needs and policy outcome variables are introduced. As a first result, the end of the cold war has reduced the bias towards former colonial links, to favour trade partners. Moreover, donors reward good economic policy outcomes since 1990. Second, aid is found generally progressive, for most donors. It appears also that most donors pay a great attention to political governance when making their aid decision.