Trends and Features of Research on Foreign Aid: A Literature Review

This paper reviews the economics literature on foreign aid. Aid supporters tend to emphasize results, while its detractors tend to highlight the incentives it provides (although they may still acknowledge some of aid’s positive results, particularly on public health). Like the modes to deliver it, research on foreign aid has evolved over the years. From the traditional aid-growth regressions research has refocused towards micro issues, including institutional inefficiencies or sector-specific bottlenecks. This tendency is positive, in so far as it can lead to useful policy advice that improves the way aid is given. Great gaps in knowledge remain, though. Notably, the aid market is poorly understood in aspects such as donors’ interaction with the recipient government or donors’ coordination. In terms of political economy, recipient countries’ decision making with regards to aid fungibility or the incentives provided by new types of aid (notably China’s) have been largely unexplored. Moreover, the types of public goods that improve households’ living standards are little understood. The scarcity of research on these questions is greatly due to lack of data – or even data opacity; if aid is to be better understood and improved, far greater efforts must be made in terms of collecting and sharing data.