Rpve 552 0061

WHAT IS BEHIND FOREIGN AID INEFFECTIVENESS?
Mohamed Mounir Sraieb
De Boeck Supérieur | « Reflets et perspectives de la vie économique »
2016/2 Tome LV | pages 61 à 73

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ISBN 9782807390720
DOI 10.3917/rpve.552.0061
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What is Behind Foreign Aid
Ineffectiveness?
Mohamed Mounir Sraieb1
Abstract – Despite the highly significant flows involved, development aid has turned
out to be ineffective in a large number of recipient countries. This paper2 explores the
reasons behind aid failure. It starts from an investigation of donors’ motivations for aid
allocation and examines their potential implications on aid policies. The main findings
are that aid seems to be heavily impacted by inertia. Along with self-interest, this may
explain the time-inconsistency problem facing aid donors. Next, the paper examines
strategies toward mitigating such a time-inconsistency, including reputation signaling
and changing aid modalities. This provides guidance on how aid should be optimally
allocated among recipient countries.
Keywords: development aid, effectiveness, aid modalities, inertia, dynamic panel,
targeted infrastructure

JEL classification: C3, D86, F35, O1, O12, O19
1 W
HAT IS BEHIND THE INEFFECTIVENESS
OF AID?
Widespread conceptual and empirical literature suggests that foreign aid is inef-
fective (Alesina and Dollar, 2000; Bourguignon and Sundberg, 2007; Faye and
Niehaus, 2012; Qian and Nunn, 2014). The efforts of the international community
translated in the Monterrey consensus (2002) and the Paris Declaration on Aid
Effectiveness (2005), further supported by the Accra Agenda for Action (2008)
and the series of U.N. Summits for Financing Development (the latest took place
1. Contact: msraieb@ulb.ac.be or https://sites.google.com/site/sraiebmohamedmounir/home

Ecares, Université libre de Bruxelles
2. This paper is a brief summary of my doctoral dissertation. My research therein contributes to the
theoretical and empirical literature on aid effectiveness and explores the ability of aid to achieve its
goals in the presence of both incentives and informational asymmetries.
DOI: 10.3917/rpve.552.0061 Reflets et Perspectives, LV, 2016/2 — 61

on October 2015 in Addis-Ababa)3 should be seen through the lenses of improv-

ing the dull development results. What explains the failure of development aid4
in alleviating poverty and promoting growth? and what should be done about it?
These are the central questions investigated in this paper.
To put things into perspective, it is useful to examine data. In 2012, roughly,
USD 491 billion5 were channeled to developing countries. This represents almost
the aggregate GDP of all the 34 low-income countries (USD 527 billion) for 2012,
and more than 545 times the GDP of say, Gambia (USD 914 million) or Guinea-
Bissau (USD 822 million) for the same year. However, despite these significant
flows, the empirical literature suggests that aid failed short from fulfilling its role.
Some conclusions were drawn in this respect. First, such a failure is largely due
to bad governance in recipient countries. Second, conditionality may not help to
address such a failure. Third, the most efficient way to give aid is either under the
form of project assistance or exclusively through budget support. In a recent re-
search (Sraieb, 2015c), I investigate each of these findings and I show that once
accounted for, agents’ incentives and information structure may invalidate such
conclusions.
1.1 Donors’ Motivation: what drives generosity?

A natural starting point for the analysis is to explore the reasons behind aid fail-
ure, especially in least developed countries. A large part of the empirical literature
that investigated the question focused on characteristics of recipient countries. In

particular, corruption, limited absorption capacity and lack of good governance in
recipient countries, are identified as the culprits for the ineffectiveness of aid. This
paper suggest that these may not be he only sources for aid failure and I show
that donors’ behaviour may have contributed to it. Basically, the reason is that
donors may have not always taken their responsibilities in disciplining recipients
through provision of the right incentives and signaling.
Strikingly, this put emphasis on the rational of the donors for giving aid.
Therefore, a straightforward step ahead in the analysis is to investigate donors’
motivations behind aid provision.
3. Monterrey Consensus (2002) has become the major reference point for development co-opera-
tion. It was the outcome the United Nations International Conference on Financing for Develop-
ment at Monterrey 2002. The Paris Declaration (2005) is an action-oriented road-map to improve
the quality of aid and its impact on development. The Accra Agenda for action (2008) is designed
to strengthen and deepen implementation of the Paris Declaration. It monitors progress and sets
the agenda for a sustained implementation of the Paris targets.
4. In this paper, I use interchangeably the terminology of development aid, foreign assistant or for-
eign aid to refer to official development assistance (ODA). OECD defines ODA as those flows of
official financing administered by official agencies with the promotion of the economic develop-
ment and welfare of developing countries as the main objective, and which are concessional in
character with a grant element of at least 25 percent.
5. Data on aid are collected from the OECD aid statistics portal. Those on GDP are collected from
the World Bank database.
62
What is Behind Foreign Aid Ineffectiveness? What is Behind Foreign Aid Ineffectiveness?
In Sraieb (2015a), three categories of variables are used as proxies for the
donor motivations: (i) variables representing the need of recipient countries. these
translate the altruistic motivations of the donor, (ii) variables representing the do-
nor’s self-interest/strategic concerns, and (iii) variables proxying the merit-based
motivation of the donor. Each of the motivation categories makes use of a num-
ber of proxies as summarized in Table 1:
Table 1. Motivation categories and explanatory variables

Aid Motivation Variable
Inertia Past Aid
Need GDP per capita of the recipient country
Good governance Democracy score, Score on PTS,
Military expenditure, Freedom from corruption
Merit-based
Market liberalization Trade freedom, Financial freedom
Commercial concerns U.S exports
Self-interest
Geo-political concerns Military assistance, Votes in the U.N.
Interestingly, the merit-based variables are broken down into proxies for the

quality of governance in the recipient country (democracy, human rights, reduced
military expenditure, absence of corruption, etc.), and proxies for market liber-
alization policies in terms of the “Washington Consensus” requirements6 (mar-
ket liberalization and economic freedom in general). These variables translate
the propensity of the recipient country to engage in effective market liberalization
policies. Furthermore, a variable representing the amount of past aid received is
introduced to account for the inertia effect.
All of the variables7 presented in Table 1 are meant to explain whether a par-
ticular recipient receives aid; and if yes, then how much? In this paper, all of the
covariates are lagged one year. The econometric justification of this procedure
is to avoid the risk of reverse causality between the aid variable and each of the
explanatory variables. On an economic ground, lagging the variables allows to
account for the delay necessary to the donor country to acquire the information
specific to each potential aid recipient.
In addition, when feasible, I take the natural log for all variables. Likewise,
I take the natural log for the dependent variable in order to have a less skewed
distribution. The resulting log-log model would help to reduce the outliers’ effect
and allows for interpreting the coefficients as elasticities.
6. Recall that the “Washington Consensus” refers to a set of broadly free market economic prescrip-
tions supposed to be in line with policy advices by Washington, D.C.-based international organi-
zations.
7. A description of the content of each variable is provided in the appendix.
63
1.2 W
hat is New?: Introducing Dynamics
and Economic Freedom Concerns
Accounting for inertia in the model and adding market liberalization concerns in
the merit-based motivations of the donor are central to this study and are a con-
tribution of my paper.
It is worth noting that most of the empirical studies on aid effectiveness are
cast in a static framework although it is widely understood that there may be
inertia in aid allocation. According to McGillivray and White (1993), a commonly
identified influence in this context is the tendency for aid bureaucracies, like other
spending agencies, to use the preceding year’s allocation as a benchmark for
the current year’s aid allocation in a process of marginal incrementalism or bu-
reaucratic inertia. In order to take into account such inertia, I introduce the lagged
dependent variable as a covariate in the model.
From an econometric perspective, introducing dynamics into the model is a
major advantage, since this allows to avoid a sizeable difficulty associated with
static models. Indeed, virtually most of the studies on aid motivations are based on
static models making use of one of three alternatives: a Tobit model, a Heckman
method or a two-part procedure. These techniques proceed in two stages:
–– the aid eligibility stage, in which the donor country decides whether a poten-
tial recipient country receives any aid at all; and
–– the level stage, in which it is decided how much aid to allocate to the coun-
tries that have been selected as eligible in the first stage.

An investigation of the data reveals two characteristics: On the one hand,
the aid flows from major donors tend to be allocated among almost all recipi-
ent countries that are listed by the OECD as eligible for official development aid
(ODA). On the other hand, this pattern does not change over time regardless of
the economic, social or political performances of these countries.
This is a finding in itself, which would have a direct effect on the choice of the
estimation technique.
On the methodological side, these characteristics are problematic for the
above mentioned static estimation techniques, Indeed, the first stage (called also
the gate-keeping stage) may be potentially ineffective, since all the ODA-eligible
countries are given a yearly allocation. This translates in a lack of variability in the
list of recipient countries, making potentially non-operational the eligibility stage.
By contrast, the system-GMM type of estimator used in this paper mod-
els aid eligibility and aid allocation in a single stage. Notice that the econometric
technique used is particularly suitable for panels with large number of individuals
and few time periods, which is the case for the present study.
Another methodological contribution of the paper refers to the content of
the merit-based motivations of donors. Although these can be evaluated along
different lines, the literature focused only on the political dimension as proxied by
some good governance indicators. This is the quality of governance of a recipi-
ent country, which translates the perceived performance of the recipient in terms
of civil and political rights, democracy, fighting corruption, etc. According to this
64
view, more aid should be allocated to countries that perform better in terms of
quality of governance.
Surprisingly, the literature poorly measured the interest of donors for the
recipient’s implementation of sound economic policies and market-oriented re-
forms (market liberalization policies). This is anecdotal since market liberalization
policies were anchored in the missions’ statement of most Aid Agencies and are
a cornerstone of official declarations concerning the rational behind aid provision.
To address this shortcoming, I decompose the merit-based variables into
proxies for the quality of governance in the recipient country and proxies for mar-
ket liberalization in terms of the “Washington Consensus” requirements.
1.3 The Results: Inertia and Merit-Based Motivations

Using a System-GMM type of estimator and considering a dynamic modeling,
I find considerable evidence that aid is heavily dictated by inertia (see Table 2).
All else equal, a one-percentage change in the amount of the previous year aid
leads to a 0.412 percentage change in aid for the current year. By the mere fact
that a country received aid in a particular year, it continues to attract even more
aid, in average, the following year. This tendency is independent from all other
factors (i.e., need of the country, population size, strategic importance, merit of
the recipient, etc.). This means that a country’s initial level of aid plays a strong
role in predicting its future level.

With bureaucratic inertia having such an impact on aid allocation, the ques-
tion arises on the effectiveness of conditioning aid provision on political, social,
or economic reforms.8 Kanbur (2003) gives striking examples of real experiences
that show how difficult it is for the donors to suspend the release of aid, even if
the recipient fails in meeting the conditions for giving.
Interestingly, I also find evidence that, when measured properly, the econom-
ic merit of recipient countries seems to impact significantly the aid allocation by
the donor (see coefficients on market liberalization variables on Table 2 above).
This conclusion may come at no surprise to the layperson. It however challenges
much of the aid literature, which concludes that at best, the merit-based motiva-
tion is a secondary determinant for aid provision, and at worst, it may not matter
at all.
I claim that such a result is mainly due to an incomplete measurement of the
merit-based motivations of donor countries, given that the literature focused only
on the political dimension as proxied by some good governance indicators.
8. Aid conditionality means that donors attach conditions for granting aid. These conditions are
meant to ensure an environment that is favorable to aid effectiveness. Examples of such policies
include fighting corruption, promoting civil liberties and political rights, simplifying administrative
procedures, etc.
65
Table 2. System GMM (dependent variable: Ln(AID))

Variables Coefficients
0.412***
Past AID
(0.076)
-0.415***
GDP per capita
(0.148)
0.013
Democracy
(0.014)
-0.172**
Political Terror Scale
(0.077)
-1.65e-05**
Military Expenditure
(7.20e-06)
0.013***
Trade Freedom
(0.004)
0.015***
Financial Freedom
(0.004)
-0.009**
Freedom from Corruption
(0.004)
0.059
Exports
(0.061)
0.001***
Military Aid

(0.0001)
0.065
U.N. Votes
(0.359)
0.255***
Population
(0.076)
0.366
Constant
(1.827)
Time Dummies yes
Observations 540
Number of Countries 96
Robust standard errors in parentheses (*** p < 0.01, ** p < 0.05, * p < 0.1)
Most striking here is that democratizers (recipient countries that perform well
in terms of promoting democracy as a perquisite for receiving aid) are not al-
located more aid. However, economic liberalizers (those who promote free mar-
ket reform are rewarded by the donor in terms of aid received. This puts a limit
on what a particular recipient country can expect from going more democratic
(promotion of human rights, civil and political liberties, etc.). These are among the
few factors over which the recipient has easy command in the short to medium
term.
66
1.4 M
ore on the results: the weight
of motivation categories in the donor’s decision
Next, I move beyond existing studies and investigate the relative importance of
the motivation vectors (need, merit and self-interest). The idea is to assess which
of the vectors is the most valued by the donor when allocating its aid across re-
cipient countries.
The exercise must be carried with due caution since the models considered
have different numbers of observations and different number of covariates. This
exercise should not be seen as a comparison between models in terms of their
goodness of fit. It is rather an appreciation of how close to the observations is the
prediction of each of the model. This gives a rough idea about the contribution
of the concerned vector of motivation to the fit of the model. That is, its contribu-
tion to the precision of the prediction on observed aid. It is in this sense that I can
conclude about the importance given by the donor to each of the merit, need or
self-interest vectors.
To proceed, I start first, with the basic model (containing only the time dum-
mies, “past AID” and the population variable). I then add sequentially the different
motivation vectors to the basic model. I therefore consider the following specifi-
cations:
–– the basic model augmented by the need variables (GDP per capita);
–– the basic model augmented by the merit variables (military expenditure,
democracy, PTS, trade freedom, financial freedom, and freedom from

corruption);
–– the basic model augmented by the self-interest variables (export, military
assistance and U.N. vote).
Second, I compare each of the models with the basic specification in terms
of the Bayesian Information Criterion (BIC). I also compute the Akaike Information
Criterion (AIC). The model having the lowest BIC or AIC is the one fitting better
the observations in hand.
The results of such an exercise are reported in Table 3:
Table 3. Assessing the relative importance

of the vectors of motivations
Basic Basic Model & Need Basic Model & Merit Basic Model & Self-
Model
Model Vector Vector Interest Vector
BIC 403.166 340.824 125.91 186.862
AIC 354.933 288.233 55.720 126.527
Table 3 states that the basic model (past AID, population and time dummies)
returns a BIC of 403.166 (AIC: 354.933). Introducing the need vector, decreases
the BIC to 340.824 (the AIC decreases to 288.233) suggesting that the resulting
model fits better the data. Alternatively, adding the self-interest vector reduces
67
further the BIC to 186.862 (the AIC further decreases to 126.527). I obtain a
model with a higher explanatory power. Finally, introducing the merit vector to the
base specification gives an even better model in terms of explanatory power. The
BIC drops to 125.91 (while AIC decreases to 54.829).
It is in this sense that I can claim that the merit-based motivation of the donor
country has more weight in the decision to allocate aid than any of the other mo-
tivation vectors. This is a finding that contrasts with the literature. In most models
on aid allocation, the donor’s self-interest motivation has a prominent role in the
aid allocation decision. I argue here that the merit dimension is the dominant vec-
tor of motivation for allocation and that the bias found in the literature toward the
self-interest motivation of the donor seems to be mainly due to a poor measure-
ment of recipients’ “merit”.
The point I make here is that the result made in the literature on the su-
periority of self-interest motivations of donors is surely biased since it is based
on several complementary proxies of donor interest (bilateral trade, votes in the
U.N., military assistance, etc.) compared to incomplete measurements of the
donor’s merit-based motivations. This is precisely the pitfall addressed in the
first part of these notes. I complement the measurement of merit-based motiva-
tions, by proxies for market liberalization policies, in the spirit of the «Washington
Consensus» requirements.
The results show that market liberalization performances explain more the
distribution of aid than does the need of the recipient or human rights concerns.
Furthermore, self-interest of the donor ranks high, far above donor’s altruism,
in the motivations driving aid allocation. This may explain the week degree

of enforcement of conditionality by most aid donors. As such, the importance
of a recipient country to the strategic interests of the donor brings full force to the
time-inconsistency problem and puts the whole conditionality architecture under
strain.
1.5 E
conomic Policy Implications:
Donors’ Reputation Building
Ultimately, the main message behind the investigation of aid motivations is two-
fold. For recipients, the results suggest that the best way to attract aid is to go
for market liberalization (trade freedom, financial freedom and economic free-
dom, in general). As for the donor, the conclusion is that there is no reason for aid
to be effective if it is based on pure inertia, on excessive altruism, or on self-
interest (if it disregards democratization or good governance and rewards geo-
strategic partners and allies). This creates a time-inconsistency problem on the
side of the donor and destroys incentives for effort provision on the side of the
recipients.
One efficient way to address the problem and retrieve effectiveness is for the
donor to invest in reputation. The extent to which this may solve the problem and
the conditions under which the solution is beneficial to the agents are questions
investigated in Sraieb (2015b).
68
2 W
HAT IS NEXT: A NEW INNOVATIVE APPROACH
TOWARD EFFECTIVENESS
At the heart of the analysis above, there is the time-inconsistency problem. This
leads to a commitment problem on the side of the donor: ex-post, the donor of
conditional aid is tempted to deliver aid regardless of the reform implementation
or the recipient involvement. Anticipation that this will happen, in turn, destroys
the recipient’s incentive to carry out costly reform policies ex-ante.
This would not be a problem had the recipients used aid efficiently.
Unfortunately, this is not always the case. The reason is that the donor faces
a disbursement pressure that acts toward an unconditional release of aid. The
literature has investigated the sources of such disbursement pressures.9 These
can be classified into three main categories: altruistic motivations of the donor
(warm glow), opportunistic behavior or pure bureaucratic inertia.
All these reasons point to the difficulty for donors to resist the pressure
toward aid release. As such, there is little hope that solutions to the time-incon-
sistency problem come from donor actions on aid volumes (i.e., decreasing or
withdrawing aid to recipient following a non-contracted use of aid).
Efficiently mitigating time-inconsistency may be implemented through an-
other instrument at the hands of the donor. This has to do with changing the
composition of aid. Indeed, aid can be given under lump sum transfers that enter
directly the general budget of the recipient country or as an investment via a
financing of a project therein. These forms of aid are called respectively budget

support and project assistance. Both of them are commonly designated by aid
instruments.
The argument behind changing the aid instrument as a solution to the time-
inconsistency problem is that the effectiveness of aid in promoting development
and combating poverty also depends on the form under which aid is delivered.
Different aid instruments bring different incentives to agents. The choice of the
right instruments or (mix of instruments) is as important as the volume of aid itself
and can potentially improve aid effectiveness by providing more discipline on the
recipients’ side.
However, despite the existence of a large consensus on the importance of
the instruments10 to provide aid, the question of the “right” choice of aid modality
is still open.
In order to investigate the efficiency of aid instruments, Legros and Sraieb
(2015) consider a contractual setting where a donor cares about helping the re-
cipient to accumulate income. Nevertheless, he has a preference on how aid
9. A detailed survey of each of these reasons is presented in Berlinschi (2010).

10. This paper considers two aid modalities: a non-targeted, fungible budget defined as aid chan-
neled to the partner government using the country’s own allocation, procurement and account-
ing system, on the one hand; and a non-fungible infrastructure project where the donor directly
participates in the design and the implementation of a developmental project, decides the inputs
to be provided, and usually uses its own disbursement and accounting procedures, this is off-
budget.
69
should be allocated among the different agents in the recipient country (the poor
or the rich). Importantly, the donor has to rely on the local government for per-
forming this allocation. Because the donor has no control on the way the recipi-
ent will allocate monetary transfers between the rich and the poor, the donor may
favour targeted investments in projects like infrastructure building as opposed to
fungible non-targeted budget support.
The results in Legros and Sraieb (2015) suggest that it is often optimal for
the donor to offer both budget support and infrastructure assistance, in line with
practices of most donors.
Under perfect information about the ability of the recipient country to engage
in income redistribution toward the poor, the aid package involves a fixed project
and positive transfer to recipient countries that exhibit a low willingness or ability
to redistribute to the poor. For countries with a larger willingness to redistribute,
larger infrastructure projects are offered but those countries are required to co-
finance the project.
When the recipient country’s ability to distribute is private information, the
aid contract will involve both a positive monetary transfer to the recipient and
a project when the expected ability to engage in income redistribution is small.
If, however, this expected ability is high, the aid contract involves a positive co-
payment from the recipient country and therefore precludes some low-income
countries from receiving aid.
Our main finding is challenging in that it stipulates that while it is possible to
separate types via contracting, the donor prefers to use a pooling contract.

We also contrast the second-best contract with matching grant policies,
another mechanism used for aid allocation. While matching grant policies allow
separation of types, they are not second-best optimal and also tend to prevent
more countries from getting aid as compared to the second-best.
3 CONCLUDING REMARKS
Investing in reputation signaling and changing aid modalities are undoubtedly ef-
ficient strategies toward mitigating the time-inconsistency problem on the side of
the donor and therefore, strengthening aid effectiveness.
Yet, an objection against these strategies is that they assume a demand-
ing organizational design. Indeed, so far, the analysis considered the donor as a
black box, an institution whether bilateral (for instance a national aid agency) or
multilateral (ex. the International Development Association (IDA), the International
Bank for Reconstruction and Development (IBRD), etc.), where the decision on
whether to provide aid and enforcing the contract is centralized. In a number of
institutions, this may not be the case and the task of enforcing the contract is
delegated to departments.
Decentralization may harm reputation. On the one hand, existence of career
concerns for the staff (whether they are driven by intrinsic motivation for promo-
tion or in terms of existence of ex-ante monitoring and checks and balances on
70
the staff’s decisions) may lead to excessive toughness and too much reputation
signaling. On the other hand, these incentives may be also ineffective if it is the
staff that decides on success/failure of a recipient to comply with all (or part) of
the conditions linked to the contract. Actually, there is scope for distortions of dif-
ferent types that makes all the situations likely. Investigating these effects is out
of the scope of this paper. However, they are interesting lines for future research.
Another sizeable challenge to aid effectiveness is the failure of coordination
among donor countries. This is a constant theme that ranks high in the donors
community debates and declaration of intentions. The Paris Declaration (2005)
and the Accra Agenda for Action (2008) thus mentioned aid coordination as one
of the key mechanisms for enhancing aid effectiveness. The signatory donors
committed to coordinate, simplify procedures and share information to avoid
duplication of aid (the harmonization principle) and put effort in view to make their
activities as cost-effective as possible.
However, records on coordination among donors are quite disappointing.
Thiele et al. (2010) find persistence in aid duplication. Frot and Santiso (2011) find
evidence for herding among donors. Regression results of Nunnenkamp et al.
(2015) indicate that coordination among donors has even weakened since the
Paris Declaration (2005).
Considering coordination among donors enriches the analysis and would in-
form policies about its adverse impact on the strategies discussed above.
REFERENCES

Alesina, Alberto & Dollar, David (2000). Who Gives Foreign Aid to Whom and Why?
Journal of Economic Growth, 5(1), 33-63.
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International Organization, 5(4), 433-459.
Bourguignon, François & Sundberg, Mark (2007). Aid Effectiveness: Opening the Black
Box. American Economic Review, 97(2), 316-321.
Faye, Michael & Niehaus, Paul (2012). Political Aid Cycles. American Economic Review,
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Frot, Emmanuel & Santiso, Javier (2011). Herding in aid allocation. Kyklos, 64(1),
54-74.
Kanbur, Ravi (2003). The Economics of International Aid. In Handbook of the Econo-
mics of Giving, Altruism and Reciprocity, Amsterdam: Elsevier.
Legros, Patrick & Sraieb, Mohamed Mounir (2015). Money or Projects: How Should
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APPENDIX
Explanatory Variables and their Categories
In accordance with the literature, I relate aid flows to a set of explanatory
variables presented below:
–– Past Aid: this is aid lagged one year. The expected sign for the variable is
positive.
–– GDP per capita: measured in purchasing power parity in constant 2009.
–– Democracy: this is an indicator of good governance and the quality

of institutions, which ranks the political regime of a recipient country from
most autocratic (-10) to most democratic (+10).
–– Political Terror Scale (PTS): this is a measure of respect for personal integrity
rights in terms of the prevalence of political imprisonment, disappearances,
torture, political murder, and other forms of politically motivated violence
within a country. The score on PTS is such that 1 means worst and 5 means
best human rights performance.
–– Military expenditure: these are military expenditure of the recipient country
expressed in millions of constant 2009 U.S. Dollars.
–– Trade freedom index: this is a composite index measuring the absence of
tariff and non-tariff barriers that affect imports and exports of goods and ser-
vices. The trade freedom index reflects the openness of an economy to the
import of goods and services from around the world and the citizen’s ability
to interact freely as buyers or sellers in the international marketplace.
–– Financial freedom index: this is a measure of banking efficiency as well as a
measure of independence from government control and interference in the
financial sector.
–– Freedom from corruption index: corruption undermines economic freedom
by introducing insecurity and uncertainty into economic relationships.
–– Exports: this is the flow of the donor’s exports toward the aid recipient coun-
try. This variable describes the economic importance of the recipient to the
donor. Data on exports are measured in millions of U.S. Dollars.
72
–– Military aid: this is the military assistance provided by the donor to partner
countries. This variable proxies the country’s strategic importance to the do-
nor’s security interests. Data are expressed in millions, constant 2009 U.S.
Dollars.
–– U.N. vote: this is a variable translating the strategic motivations of the donor
in terms of the voting allegiance of the recipient country in the U.N. General
Assembly (UNGA). For a given recipient, it represents the percentage of
votes in line with the donor in the UNGA. Abstentions and absenteeism are
discarded.
73

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WHAT IS BEHIND FOREIGN AID INEFFECTIVENESS?

Mohamed Mounir Sraieb

De Boeck Supérieur | « Reflets et perspectives de la vie économique »

2016/2 Tome LV | pages 61 à 73

Distribution électronique Cairn.info pour De Boeck Supérieur.

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Powered by TCPDF (www.tcpdf.org)

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1. Contact: msraieb@ulb.ac.be or https://sites.google.com/site/sraiebmohamedmounir/home

DOI: 10.3917/rpve.552.0061 Reflets et Perspectives, LV, 2016/2 — 61

on October 2015 in Addis-Ababa)3 should be seen through the lenses of improv-

1.1 Donors’ Motivation: what drives generosity?

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Table 1. Motivation categories and explanatory variables

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1.3 The Results: Inertia and Merit-Based Motivations

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Table 2. System GMM (dependent variable: Ln(AID))

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Table 3. Assessing the relative importance

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9. A detailed survey of each of these reasons is presented in Berlinschi (2010).

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Table 1. Motivation categories and explanatory variables

Table 2. System GMM (dependent variable: Ln(AID))

Table 3. Assessing the relative importance