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Why it pays for aid recipients to take note of the Millennium Challenge Corporation: Other donors do!

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  • Dreher, Axel
  • Nunnenkamp, Peter
  • Öhler, Hannes

Abstract

It is widely believed that the Millennium Challenge Corporation (MCC) has grossly fallen short of high expectations raised by the Bush administration in 2002. From the perspective of potential recipient countries, the crucial issue is whether the MCC increased the overall pool of aid resources available to them. We argue that this question extends far beyond the distribution of the limited MCC resources. By employing OLS and treatment-effects estimations, we assess how other US aid agencies and non-US donors reacted to MCC decisions. We find that positive signaling effects tend to dominate possible substitution effects not only for overall US aid but also for multilateral donors. Regarding other bilateral donors the evidence is mixed.

Suggested Citation

  • Dreher, Axel & Nunnenkamp, Peter & Öhler, Hannes, 2010. "Why it pays for aid recipients to take note of the Millennium Challenge Corporation: Other donors do!," Kiel Working Papers 1609, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1609
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    Cited by:

    1. Masaki, Takaaki, 2016. "Coups d’État and Foreign Aid," World Development, Elsevier, vol. 79(C), pages 51-68.
    2. Öhler, Hannes & Nunnenkamp, Peter & Dreher, Axel, 2012. "Does conditionality work? A test for an innovative US aid scheme," European Economic Review, Elsevier, vol. 56(1), pages 138-153.
    3. Takaaki Masaki & Bradley C. Parks, 2020. "When do performance assessments influence policy behavior? Micro-evidence from the 2014 Reform Efforts Survey," The Review of International Organizations, Springer, vol. 15(2), pages 371-408, April.
    4. Bickenbach, Frank & Mbelu, Asithandile & Nunnenkamp, Peter, 2019. "Is foreign aid concentrated increasingly on needy and deserving recipient countries? An analysis of Theil indices, 1995–2015," World Development, Elsevier, vol. 115(C), pages 1-16.
    5. Knack, Stephen & Xu, Lixin Colin & Zou, Ben, 2014. "Interactions among donors'aid allocations : evidence from an exogenous World Bank income threshold," Policy Research Working Paper Series 7039, The World Bank.
    6. Katharina Stepping, 2012. "Do poor health conditions lead to higher allocation of development assistance?," MAGKS Papers on Economics 201230, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    Official development aid; Millennium Challenge Corporation; additionality; signaling; United States; other DAC donors;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid

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