Proceedings of the German Development Economics Conference, Berlin 2011 47
Using data from 1988 to 2007, we examine to what extent bilateral aid flows of an individual donor to a country depend on aid flows from all other bilateral and multilateral donors to that country. We thereby want to assess to what extent donor coordination, free-riding, selectivity, and common donor motivations drive bilateral aid allocation as these determinants would point to different dependence structures. Using approaches from spatial econometrics and controlling for endogeneity using an GMM framework, we find that other bilateral flows lead to a significant (but rather small) increase in aid flows from a particular donor. The effects are particularly pronounced for so-called donor 'orphans' who seem to be collectively shunned by bilateral aid donors. This suggests that donor coordination and free-riding are quantitatively less important than common donor interests and selectivity.