Do economic institutions count in giving aid? Comparative observations on aid allocation between the U.S. and other Development Assistance Committee members

Abstract

This study identifies whether the quality of recipient countries’ economic institutions was a determining factor in the aid allocation practices of donor nations. Three criteria that would influence aid decision were proposed: recipient institutions (economic and political), donor strategic interest, and recipient need. By examining a panel of 109 countries during 2007–2016, our findings suggest that there is a distinct contrast in the patterns of aid allocation between the U.S. and the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) regarding institutional factors—economic and political institutions—while demonstrating not much difference in terms of donor interest and recipient need. The economic and political institutions negatively influence the amount of aid commitment only for the DAC donors. We presume that they focus more on ex-post conditionality than ex-ante selectivity criteria when it comes to the level of recipient economic and political institutions. In addition, our finding does not support the argument that the U.S. behaves more strategically in aid giving practices (Lumsdaine, 1993; Noël & Thérien, 1995). The U.S. is less responsive to conflict situations and the colonial history of a recipient than the DAC donors are.