Estimating Aid-Allocation Criteria with Panel Data

Abstract

In 1990, the net amount of economic aid, or official development assistance, to all recipients from all multilateral and bilateral sources was about US$62 billion, an amount that exceeded the GDPs of Greece and Portugal. Despite the size of this yearly transfer there has been no rigorous modelling and estimation of the criteria by which it occurs. As a result, there is little agreement about the extent to which ODA is allocated according to the needs of the recipient countries. The purpose of this paper is to develop a rigorous theoretical model of ODA allocation that can be used to provide consistent estimates of the importance of recipient needs.