International Development Aid Allocation Determinants

This paper investigates the factors explaining aid allocation by bilateral and multilateral donors. We use data for 146 aid recipient countries over the period 1990-2007 and employ Bayesian Averaging of Classical Estimates Approach (BACE) approach and find that both the recipient need and donor interest motives are 'significant' determinants of bilateral and multilateral aid allocation process. Our results also indicate that the measures for recipient need and donor interests vary from bilateral to multilateral donors. For example, with respect to the recipient need, we find that while income per capita matters in the allocation of multilateral aid, for bilateral donors the size of population, as an indicator of recipient need, is a key element in the allocation process. Similar findings also hold for democracy governance indicators.