Bypass or Engage? Explaining Donor Delivery Tactics in Foreign Aid Allocation

The conventional wisdom in the literature on aid allocation suggests that donors utilize bilateral aid as a tool to buy influence in the aid-receiving country. Those who conclude that aid is driven by donor self-interest focus on government-to-government aid transfers. However, this approach overlooks important variation in delivery tactics: Bilateral donors frequently provide aid to nonstate actors. This paper argues that donors resort to delivery tactics that increase the likelihood of aid achieving its intended outcome. In poorly governed recipient countries, donors bypass recipient governments and deliver more aid through nonstate actors, all else equal. In recipient countries with higher governance quality, donors engage the government and give more aid through the government-to-government channel. Using OLS and Probit regressions, I find empirical support for this argument. Understanding the determinants of donor delivery tactics has important implications for assessing aid effectiveness.