Chapter 16Aid Allocation: A Complex Perspective

Robert J. Downes and Steven R. Bishop

16.1 Aid Allocation Networks

16.1.1 Introduction

While much has been written on foreign aid allocation, relatively little work has considered mathematical models beyond regression analysis. Modelling aid allocation is a complex issue. Empirical findings on the allocation of foreign aid indicate that donor countries pursue a wide range of objectives, achieving complex outcomes sometimes with unintended consequences. Poverty alleviation is frequently cited as a key factor in the disbursement of aid, see United Kingdom Government 2002, United States Government 1961, Collier and Dollar 2002; donor countries often engage in less than altruistic behaviour, see Harrigan and Wang 2011; highly heterogeneous behaviour is the norm, see Collier and Dollar 2002, Harrigan and Wang 2011, Alesina and Dollar 2000, Bermeo 2008, Berthélemy 2006, and Balla and Reinhardt (2008). Recent research indicates that decision-making in the donor community also impacts the allocation of aid (see Riddell 2007 and Frot and Santiso 2011). Such ‘bandwagon’ behaviour is widely recognised in financial markets, see Schiller 2000 and Hommes 2006, but has only recently been considered as a component of aid allocation.

The development of mathematical models can support thinking on aid allocation and effectiveness. Most mathematical models follow a statistical trajectory, postulating a range of variables upon which aid allocation ...

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