Donor Competition for Aid Impact, and Aid Fragmentation

Author/Editor:

Kurt Annen ; Luc Moers

Publication Date:

August 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper shows that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium, explaining aid fragmentation. This equilibrium may be inefficient even without fixed costs, and the inefficiency increases in the equality of donors budgets. The paper presents empirical evidence consistent with theoretical results. These imply that, short of ending donors maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Moreover, since policies to increase donor competition in terms of aid effectiveness risk reinforcing relativeness, they may well backfire, as any such reinforcement increases aid fragmentation.

Series:

Working Paper No. 12/204

Subject:

English

Publication Date:

August 1, 2012

ISBN/ISSN:

9781475505542/1018-5941

Stock No:

WPIEA2012204

Format:

Paper

Pages:

37

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