Kiel Working Papers, Kiel Institute for World Economics
No 1789:
Determinants of Donor Generosity: A Survey of the Aid Budget Literature
Andreas Fuchs, Axel Dreher and Peter Nunnenkamp
Abstract: What determines the foreign aid effort of donor countries?
We review the existing literature on donors’ aid budgets and examine which
of the suggested variables robustly determine aid effort, measured as
Official Development Assistance (ODA) as a share of gross national income.
More specifically, we empirically test 16 hypotheses using panel
econometric methods for member countries of the Development Assistance
Committee (DAC) in the 1976-2008 period. To test for the robustness of our
results, we extend our dataset to 48 possible determinants of aid budgets
and apply an Extreme Bounds Analysis (EBA). In our fixed effects
regressions, we find that aid inertia, the donor country’s GDP per capita,
the existence of an independent aid agency, and colonial history have a
robust and quantitatively relevant impact on countries’ aid efforts. Among
the potential substitutes for aid, remittances exert a robust effect.
Excluding year fixed effects, political globalization, Russian military
capacity, peer effects, aid effectiveness, and government debt also play a
significant role
Keywords: Foreign aid, Official Development Assistance, Aid budget, Extreme Bounds Analysis; (follow links to similar papers)
JEL-Codes: F35,; H81,; H87; (follow links to similar papers)
36 pages, August 2012
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