A New Approach to the Allocation of Aid Among Developing Countries: Is the USA Different from the Rest?

Abstract

This paper attempts to explain the factors that determine the geographical allocation of foreign aid. Its novelty is that it develops a rigorous theoretical model and conducts the corresponding empirical investigations based on a large panel dataset. We run regressions for different major donors (United States, Canada, France, Italy, Japan, United Kingdom, and multilateral organizations). with the explicit objective of establishing whether the United States, in light of its geopolitical hegemony, behaves differently from others. We find that all the donors respond to recipient need in their allocation of aid, but that the United States puts less emphasis on this than the other donors with the exception of Japan. We also find that the United States puts more emphasis on donor¿recipient linkages than do the other donors suggesting that the United States attaches greater importance to issues of donor interest, for example, geopolitical, commercial, and other links with specific recipients.