Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262029 
Year of Publication: 
2021
Series/Report no.: 
IFN Working Paper No. 1415
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
In this study, we derive a poverty-minimizing allocation rule, based on which we assess the povertyefficiency of actual aid allocations, with a special focus on the comparative impact of new donors and new non-aid flows. The results suggest a substantial misallocation of aid. Our benchmark estimates indicate that donors should reallocate nearly half the total aid budget from aid darlings (countries receiving more aid than the allocation rule specifies) to aid orphans (countries receiving less aid than the allocation rule specifies). The estimated poverty-reducing efficiency varies considerably across donors. Whereas new global actors such as the Gates foundation perform well above average, the non-DAC bilateral donors perform clearly worse. Overall, neither the new donors nor the new financial flows alleviate the observed misallocation of aid. While the new donors stand for a non-negligible share of overall poverty reduction, together they perform below average in terms of poverty reduction per aid dollar. Similarly, rather than counteracting the relative neglect of countries identified as particularly underfunded in terms of aid, the non-aid financial flows add to the inequitable distribution. Based on an extensive battery of alternative model calibrations, we establish upper and lower bounds on our estimates, allowing for clear policy recommendations.
Subjects: 
Aid allocation
Poverty
Donors
Official development assistance
Other official flows
JEL: 
D63
E61
F35
O11
Document Type: 
Working Paper

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