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Aid allocation

Aid allocation and the MDGs: how much should different countries get and why?

How can aid allocation be assessed?

Authors: E. Anderson
Publisher: Overseas Development Institute, London, 2007

Full text of document

This briefing paper discusses issues around, and principles of, aid distribution amongst developing countries. It particularly focuses on these debates in the context of the Millennium Development Goal’s (MDG’S) and asks questions such as what proportion of aid should go to the poorest countries?

A key finding is that most donors’ allocations are only weakly based on recipient country needs. Poverty efficiency is a simple and flexible principle for making aid allocation decisions. In terms of the MDGs, it would imply greater emphasis on global as opposed to country-level targets.

A number of implications for donors seeking to implement the poverty efficiency principle in practice are put forward. These include:

  • the need to use a measure of poverty which reflects the depth and severity and not just the incidence of poverty, since there is widespread consensus that this is the appropriate way to measure poverty
  • the implications of using alternative poverty indicators: not just $1-a-day or $2-a-day poverty but also under-nourishment or access to water and sanitation must be explored
  • the implications of using alternative econometric estimates of aid’s effect on economic growth should be explored.
  • Implications on the tasks for researchers include:
  • the need to look for ‘win-win’ re-allocations of aid which further progress towards all (or at least most) objectives
  • the need to make sure donors are aware of the trade-off’s between different objectives, so that difficult decisions are at least made on the basis of the best possible evidence.