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Aid Tying and Donor Fragmentation

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  • Knack, Stephen
  • Smets, Lodewijk

Abstract

This study analyzes theoretically and empirically the impact of aid fragmentation on donors’ decisions to tie their development aid to purchases from contractors based in their own countries. Building on collective action theory, it argues that a donor with a larger share of the aid market in a country has stronger incentives to maximize the development impact of its aid, by tying less of it. Empirical tests strongly and consistently support the prediction that higher donor aid shares will be associated with less aid tying. This finding is robust to recipient controls, donor fixed effects, and instrumental variables estimation. Furthermore, it contradicts other studies suggesting that when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more of their aid.

Suggested Citation

  • Knack, Stephen & Smets, Lodewijk, 2013. "Aid Tying and Donor Fragmentation," World Development, Elsevier, vol. 44(C), pages 63-76.
    • Handle: RePEc:eee:wdevel:v:44:y:2013:i:c:p:63-76
    DOI: 10.1016/j.worlddev.2012.09.006
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    Cited by:

    1. García Castillo, Jorge, 2024. "Donors want it faster, humanitarian organizations get it cheaper," World Development, Elsevier, vol. 177(C).
    2. Emmanuelle Auriol & Josepa Miquel-Florensa, 2019. "Taxing fragmented aid to improve aid efficiency," The Review of International Organizations, Springer, vol. 14(3), pages 453-477, September.
    3. Philip Keefer & Christopher Kilby, 2021. "Introduction to the special issue: In memoriam Stephen Knack," The Review of International Organizations, Springer, vol. 16(3), pages 473-493, July.
    4. Öhler, Hannes, 2017. "A micro-level analysis of the effects of aid fragmentation and aid alignment," IDOS Discussion Papers 7/2017, German Institute of Development and Sustainability (IDOS).
    5. Molenaers, Nadia & Dellepiane, Sebastian & Faust, Jorg, 2015. "Political Conditionality and Foreign Aid," World Development, Elsevier, vol. 75(C), pages 2-12.
    6. Liya Palagashvili & Claudia R. Williamson, 2021. "Grading foreign aid agencies: Best practices across traditional and emerging donors," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 654-676, May.
    7. Resnick, Danielle & Okumo, Austen, 2017. "Subnational Variation in Policy Implementation: The Case of Nigerian Land Governance Reform," Feed the Future Innovation Lab for Food Security Policy Research Papers 265412, Michigan State University, Department of Agricultural, Food, and Resource Economics, Feed the Future Innovation Lab for Food Security (FSP).
    8. Fløgstad, Cathrin & Hagen, Rune Jansen, 2017. "Aid Dispersion: Measurement in Principle and Practice," World Development, Elsevier, vol. 97(C), pages 232-250.
    9. Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series 6019, The World Bank.
    10. Han, Lu & Koenig-Archibugi, Mathias, 2015. "Aid Fragmentation or Aid Pluralism? The Effect of Multiple Donors on Child Survival in Developing Countries, 1990–2010," World Development, Elsevier, vol. 76(C), pages 344-358.
    11. Michael G. Findley & Helen V. Milner & Daniel L. Nielson, 2017. "The choice among aid donors: The effects of multilateral vs. bilateral aid on recipient behavioral support," The Review of International Organizations, Springer, vol. 12(2), pages 307-334, June.
    12. Kurt Annen & Luc Moers, 2017. "Donor Competition for Aid Impact, and Aid Fragmentation," The World Bank Economic Review, World Bank, vol. 31(3), pages 708-729.
    13. Aurore Gary & Audrey-Rose Menard, 2015. "Aid, Trade and Migration : How are OECD countries policies connected in times of crisis?," Working Papers of BETA 2015-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    14. Stephan Klingebiel & Mario Negre & Pedro Morazán, 2017. "Costs, Benefits and the Political Economy of Aid Coordination: The Case of the European Union," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 144-159, January.
    15. Han, Lu & Koenig-Archibugi, Mathias & Opsahl, Tore, 2018. "The social network of international health aid," Social Science & Medicine, Elsevier, vol. 206(C), pages 67-74.
    16. Molenaers, N. & Gagiano, A. & Smets, L. & Dellepiane, S., 2015. "What Determines the Suspension of Budget Support?," World Development, Elsevier, vol. 75(C), pages 62-73.
    17. Abbas, Syed Ali & Selvanathan, Eliyathamby A. & Selvanathan, Saroja & Bandaralage, Jayatilleke S., 2021. "Are remittances and foreign aid interlinked? Evidence from least developed and developing countries," Economic Modelling, Elsevier, vol. 94(C), pages 265-275.

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