Proliferation and fragmentation: uphill struggle of aid effectiveness

Abstract

Aid fragmentation is one of the hindrances to aid effectiveness. As a main contributing factor, proliferated aids from the donor side have been pointed out. In this regard, we first examine the main factors for the donors’ proliferation and its links with the recipients’ fragmentation, which have been asked in several studies, but are revisited again with a comprehensive up-to-date data set. We also examine whether a recipient country is indeed going to get worse off through fragmented aid or, more directly, by proliferated aid. The main findings are (1) donors tend to proliferate their aid disbursement as their aid budget increases; (2) the recipients’ fragmentation is mainly due to the donors’ proliferation, and this has been prevalent since the early stage of aid history; (3) non-monotonicity is shown between aid fragmentation and growth, given that economies of scale is dominant in the incipient stage of a recipient country’s growth, but turns out to affect negatively in the long run; (4) therefore, the donors’ proliferation will eventually harm the recipients’ growth.