Aid Flows Research Articles

Does foreign aid affect innovation and institutional quality in middle-income countries?

In this study, we explore the dynamics between innovation, institutional quality, and foreign-aid flows in middle-income countries. Using an appropriate econometric model, we investigate the links between these variables in 79 middle-income countries (MICs) over 2005–2020. The results from our study show that foreign aid, institutional quality, and innovation have strong endogenous relationships. The short-run outcomes show that innovation Granger-causes institutional quality; foreign aid Granger-causes innovation; and quality of institutions Granger-causes foreign aid. The long-run outcomes indicate that institutional quality and innovation significantly affect the flow of foreign aid to the MICs. These results indicate that policy-makers in both foreign aid donor and recipient countries should pursue appropriate policies on foreign aid, quality of institutions, and innovation. For instance, in the short run, planners and evaluators in donor countries can direct their aid to MICs that have persistent challenges in improving their institutions and enhancing their innovative capabilities. In the long run, recipient countries ought to recognize that their institutional quality and innovation have a considerable impact on the inflows of foreign aid to their countries.

Does classification of green aid flows matter for environmental quality?

Climate change imposes an existential threat on the globe and has already had sizeable economic costs to countries. Environmental aid flows aim to alleviate the rising concerns of climate change in the developing world. Even though the existing literature has examined the effectiveness of green aid flows for reducing carbon dioxide emissions in the recipient countries, no existing study has examined the effectiveness of different classifications of green aid. Examining the green aid flows to 97 developing countries between 2002 and 2018, we find that all types of green aid significantly reduce carbon dioxide emissions; however, the aid flows targeting the environmental objectives are more effective in reducing carbon dioxide emissions compared to the aid flows that do not target environmental objectives or are not screened. The findings highlight that more aid should be screened and targeted for environmental objectives to increase the effectiveness of green aid flows in developing countries.

International Cooperation and Infrastructure Development in Bangladesh: An Analysis of Financial and Technical Support System

This study plays an important role by providing information about the actual scenario of infrastructural development of Bangladesh after taking foreign assistance from different foreign aid partners. Because of Bangladesh’s precarious economic conditions, our major foreign aid partners have provided the country with a substantial amount of public foreign assistance. This paper displays how Bangladesh depends on foreign aid to boost its economy by investing in different infrastructural mega projects. It also discusses the aid scenario of the country that has been changing not only in terms of sources and volume of aid but also in terms of sectoral allocation and utilization. This paper focuses on three points. First, the paper demonstrates the trends of foreign aid flows to Bangladesh since its independence. Second, it emphasizes national foreign policy to get incessant foreign assistance in terms of grants and loans to continue different development projects and to analyze the aid strategy of different aid partners. And third, to find out the major problems faced by foreign partners and plausible reformation made by the Bangladesh government to overcome these impediments.

Duration of the Membership in the GATT/WTO, Structural Economic Vulnerability and Trade Costs

This paper assesses the effects of the duration of membership in the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) and structural economic vulnerability on trade costs in developing countries. The analysis is performed on an unbalanced panel dataset of 121 countries over the period 1996–2018 and primarily utilizes the two-step system generalized method of moments estimator. It has established several findings. We obtain that longstanding GATT/WTO members enjoy a larger reduction in trade costs than relatively new GATT/WTO members. Concomitantly, a higher degree of structural economic vulnerability leads to higher trade costs. Moreover, the membership duration exerts a higher trade costs reduction effect in countries that are highly “structurally” vulnerable, including those that face high levels of exposure to shocks and high magnitudes of shocks. Finally, longstanding GATT/WTO members that receive higher amounts of development aid (including total development aid flows, Aid for Trade flows, and NonAfT flows) enjoy a larger trade costs reduction than relatively new GATT/WTO members.

Some factors of energy aid volatility across developing countries: A special focus on renewable sector

Energy aid effectiveness is paramount for the timely achievement of Sustainable Development Goals (SDG)-7. However, the volatility of energy aid reduces its effectiveness. Given this, the paper empirically investigates the determinants of energy aid volatility and its renewable energy generation (REG) component for 76 aid-recipient countries during 2002–2019. By considering recipient and donor-specific factors, we also explore the linkages of all these factors with the direction of volatility, i.e., aid shortfalls and windfalls. Findings reveal that variations in energy/REG aid volatility reflect the recipient's macroeconomic and institutional characteristics more than donor-specific factors. Moreover, the impacts of all these factors vary across aid shortfalls and windfalls. Specifically, economic prosperity and aid dependency increase energy/REG aid volatility, infused by different directions of aid shocks. Contrarily, oil rents, political stability, and strong democracy reduce aid volatility. Multilateral donors provide more stable funding compared to bilateral donors. We also observe that donors provide stable REG aid in countries with inadequate renewable policies and clean development mechanism funding, playing a catalyst role in supporting institutionally weak countries in the renewable sector. We draw certain policy implications for donors and recipients to manage and mitigate the adverse consequences of volatile energy aid flows.

A Foot in Two Camps? South Sudan’s Relations with China in a Historical Perspective

Relations between South Sudan and China are not a new phenomenon. However, since 2011 they have been steadily growing in terms of trade and investments, cultural exchanges, development and humanitarian aid. The breakout of the civil war in December 2013 has contributed to this trend. Amidst the disenchantment of traditional Western partners of South Sudan, massive shifts of aid flows from development to humanitarian response, and the flight of foreign capitals scared by the war, not only did China keep its presence in the country, it also took a more active stance by sending its first combat troops ever in the framework of the UN Mission, and engaging in the peace negotiations. What consequences has China’s growing presence had on South Sudan’s capacity of determining its own political agenda? This article argues that it has provided an opportunity of expanding the space for agency of the South Sudanese governing elite to make choices in opposition to the requests of traditional donors. At the same time, since relations with China are bound to pragmatic considerations from both sides, there is evidence that China’s will to partner with the country is only as strong as the potential benefits accruing from this partnership.

Sector Specific Aid Inflow, Institutional Quality and Human Development in Selected Developing Countries

Sector specific aid inflow has been considered significant for improved human development in developing economies. For this, we have analyzed how sector specific aid inflows and institutional quality affect human development by using panel data from 18 developing economies between 2002 and 2018. We have used a single equation linear model generalized method of moments (GMM) to examine the relationship between dependent and independent variables. The data has been taken from World Development Indicators, World Bank, and Organization for Economic Cooperation and Development. The result showed that aid and institutional quality were positively and significantly linked with the human development index. More aid was justified if stronger economic, political, and institutional governance could be secured in the receiving nations and the requirement for institutional improvements to make aid an influential instrument for human development in the concerned economies. The study suggests for more proper allocation of aid commitments among these countries for high growth and development. There should be a stable economic and political environment and high trade with other countries.

Aid effectiveness in sustainable development: A multidimensional approach

What is the impact of international aid? We answer this question by linking disaggregated aid-flows data to a large set of indicators classified into the Sustainable Development Goals (SDGs). Since such linkage is not perfect (due to the nature of the data), we deploy an artificial intelligence model of the causal process through which changes in aid flows contribute to the dynamics of individual indicators. The model accounts for salient features of real-world development such as multidimensionality, complex interconnections between indicators, heterogeneous aid-to-expenditure ratios, rationally-bounded bureaucracies, fungibility, and the temporal structure of contemporary aid flows across development dimensions. The model does not require cross-country pooled data, so we calibrate its parameters for each of the 146 aid-recipient countries in our sample, preserving important contextual information of each nation. By producing counterfactual simulations where aid is removed, we obtain nuanced estimates of the impact of international assistance during the first decade of the 21st century, at the level of each country, SDG, and indicator. We validate our results using a sector-specific study with similar–but more aggregate–findings. Such a large and detailed picture of the multidimensional impact of aid has not been documented before.

Exploring the Ripple Effect and Consequences of Correspondent Banking De-Risking on Global Financial Inclusion and Stability: Evidence from Europe

This study explored the ripple effect and consequences of correspondent banking de-risking on global financial inclusion and stability, with a specific focus on evidence from Europe. Driven primarily by increased compliance requirements and the need to mitigate risks associated with anti-money laundering and combating the financing of terrorism regulations, de-risking led to the termination of correspondent banking relationships with various countries and financial institutions. The research aimed to understand the implications of this phenomenon on financial integration, access to essential financial services, and the exacerbation of economic disparities among different regions and demographic groups in Europe. A descriptive research design approach was employed, mainly quantitative analysis of CBR data and regulatory changes. The findings demonstrated that de-risking had a significant negative impact on financial inclusion and stability, particularly for small and medium-sized enterprises, non-profit organizations, and marginalized communities. Moreover, the termination of CBRs disrupted the flow of remittances, trade finance, and development aid, and led to an increased reliance on less-regulated, informal channels, which in turn undermined the global AML/CFT regime and exacerbated financial crime and systemic risks. Based on these findings, the study recommended enhancing collaboration and coordination among regulatory authorities, financial institutions, and affected stakeholders to develop a harmonized regulatory framework across European countries, implement a risk-based approach, and establish a centralized information-sharing platform. Additionally, targeted capacity-building efforts, exploration of innovative financial solutions, and the development of financial inclusion strategies prioritizing the needs of the most vulnerable segments of the population were recommended to counteract the negative effects of de-risking and promote financial inclusion and stability in Europe. Keywords: Correspondent banking de-risking, financial inclusion, global financial stability, anti-money laundering, combating the financing of terrorism

Aid accessibility: Equity & education in Kenya

While we hope that the needs of recipients determine the allocation of foreign aid, we know that aid also involves the interests of donors. Substantial evidence suggests that supply-side factors dominate aid delivery, with both donor and recipient governments allocating aid according to their own domestic political agendas. Are there ever conditions under which need drives allocation and aid flows primarily to those that need it most? The distribution of education aid across regions in Kenya offers a most-likely case for such equitable, need-driven aid allocation. Kenya’s political stability and history of collaboration with aid organizations, paired with still high levels of need create favorable conditions for aid delivery to occur equitably. Yet, statistical analysis suggests that even there, the highest volume of aid does not flow to the neediest areas. This paper introduces new subnational data on aid location and maps the concentration of aid allocation in relation to the level of need across regions within Kenya. In the education sector, while most aid flows to high-need locations, aid is nearly absent in Somali-majority areas that have the highest levels of need but the fewest interventions. Such inequitable distribution of both education and assistance in its provision demonstrates how the political preferences of donors and recipient governments can divert aid away from the populations and places that need it most, reducing its effectiveness.

A Network Model Approach to International Aid

Decisions made by international aid donors regarding the allocation of their aid budgets to recipients can be mathematically modelled using network theory. The many countries and multilateral organisations providing developmental aid, mostly to developing countries, have numerous competing or conflicting interests, biases and motivations, often obscured by a lack of transparency and confused messaging. Using network theory, combined with other mathematical methods, these inter-connecting and inter-dependent variables are identified, revealing the complicated properties and dynamics of the international aid system. Statistical techniques are applied to the vast amount of available, open data to first understand the complexities and then identify the key variables, focusing principally on bilateral aid flows. These results are used to create a weighted network model which is subsequently adapted for use by a hypothetical aid recipient. By incorporating modern portfolio theory into this weighted network model and taking advantage of a donor's reasons for allocating their aid budgets to that recipient, a simulation is carried out treating the problem as an optimal investment portfolio of aid determinant 'assets' which illustrates how a recipient can maximise their aid receipts. Suggestions are also made for further uses and adaptations of this weighted network model.

Asymmetric and shock effects of foreign AID on economic growth and employment generation

The implications of foreign aid on economic growth and employment have been subjected to intense debate, with most studies focused on aggregated aid. However, different types of aid will probably affect growth and employment differently. Therefore, aggregating aid flows are most likely to provide ambiguous conclusions on their implication on employment and economic growth. The study investigates the asymmetric and shock effect of aggregated aid inflows and sectoral aid disbursement on growth and employment in Nigeria using a Non-linear Autoregressive Distributed Lags and Vector Error Correction Model. Evidence from the result shows that positive and negative shocks in aggregate aid increase and reduce growth in the long run, respectively, while negative shocks reduce growth in the short run. Likewise, positive shock reduces employment in the long run. And positive and negative shocks in aggregate aid reduce and promote employment, respectively, in the short run. However, the implications of the asymmetric effects of sectoral aid differ on growth and employment. The study reveals that positive shock in education and health aid increases employment in the long run, while positive shock in health and industry aid undermines growth in the short run. Also, positive shock in infrastructural aid decreases employment in the long run, while positive and negative shocks in infrastructural aid instigate employment in the short run. And these results confirm the asymmetricity of sectoral and aggregated aid on employment and growth. In addition, evidence from the variance decomposition tables shows that aggregated aid shock affects economic growth more than employment. Also, education and infrastructural aid affect economic growth more than employment. At the same time, health and industry aid affect employment more than economic growth. Based on the outcome of the findings, the study suggests the need to safeguard the aid inflow into the country and channel it to promote pro-growth in human capital formation to ensure long-term employment growth, especially education and health aid.

Transmission pathways between foreign aid and renewable energy consumption in Vietnam

Our paper is the first attempt to analyze the environmental consequences and energy security of foreign aid in Vietnam during the 1987–2019 period. We apply various modern econometric techniques, including the multivariate Wavelet model and an extended time-varying vector autoregression (TVP-VAR). By using the multivariate wavelet model, we find that there are cycles of period 3–4 years in the 1988–1992 sample and 18–25 years in the 1985–2001 and 1989–2009 sample for the nexus between foreign aid growth and nonrenewable, renewable energy consumption. The region (from 1989 to 1992) implies that changes in foreign aid adversely led to changes in renewable energy consumption. In those regions, the phase (1993–2005) suggests the anti-phase relation with renewable consumption leading. The phase (2006–2011) implies that changes in foreign aid adversely led to changes in renewable energy consumption. By using an extended TVP-VAR, we reveal that nearly 61% of error variance within the system stems from idiosyncratic effects. We demonstrate that there are changes in the roles of foreign aid over time. Foreign aid plays a role as a net transmitter of shocks from 1988 to 2003 and net transmitter of shocks from 1988 to 2003 and transforms into a net receiver of shocks from 2004 to 2019. In 1989, foreign aid also transmits the greatest shocks to the use of renewable energy. Furthermore, from 1988 to 1995, nonrenewable energy shocks affect the inflows of foreign aid, which then acts as a shock transmitter of these shock to the economy since 1995.

Green aid, aid fragmentation and carbon emissions

The existing studies that examined the green aid effectiveness in reducing carbon dioxide (CO2) emissions found mixed results; however, neither of these studies considered the role of aid fragmentation in the effectiveness of green aid flows. By using the dynamic panel generalized method of moments (GMM) methodology to panel data of 92 countries covering the period between 2002 and 2018, this study examines the impact of green aid fragmentation on the effectiveness of green aid flows in reducing CO2 emissions. Using different fragmentation measures, this paper finds that green aid fragmentation is detrimental to the effectiveness of green aid flows in reducing CO2 emissions per capita. The findings also highlight that the damaging impact of green aid fragmentation is lower in countries with stronger institutions. This paper highlights the need for better coordination of the green aid flows by having less fragmented green aid flows.

Donor motivation in the era of the COVID-19 crisis: Focusing on South Korean health diplomacy and response aid to COVID-19

COVID-19 has brought an unprecedented global economic burden. The widely held view is that, during times of economic crisis, there are reduced flows of foreign aid due to budgetary constraints. Although some countries’ actions seem aligned with this perspective, others, including South Korea, have acted counter-intuitively. South Korea has implemented health-related diplomacy, initiating the Agenda for Building Resilience against COVID-19 through the Development Cooperation (ABC) program. This program provides countries with COVID-19 diagnosis kits, personal protective equipment, such as masks, and health-related capacity for building and development projects. We attempt to understand the behavior of donors in the crisis context and, thus, examine South Korea as a representative case. Using South Korean health-related diplomacy as our case study, we show that South Korea has considered both its interests and recipients’ needs. Furthermore, a quantitative study with newly constructed data from the ABC program reveals that South Korea provides higher amounts of Official Development Assistance (ODA) via its ABC program to recipients with whom it enjoys close economic ties and with whom it has given higher amounts of ODA. The latter finding suggests a path-dependent act in foreign aid allocation.

Health aid for states with dissimilar foreign policy preferences, a tool for peace?

Due to its exigency and humanitarian nature, health aid is less political and thus less vulnerable to domestic and international criticism than other types of foreign aid. Ironically, this makes health aid an effective policy tool for donors to cultivate or improve relations with recipients that have divergent foreign policy preferences from donors. This implies that health problems caused by pandemics/epidemics and associated health aid can create an opportunity to ameliorate historically troubled relationships between states. By examining the link between bilateral health aid flows and differences in foreign policy preferences between 24 donors and their recipients from 1990 to 2017, this paper presents findings that support this claim. The theoretical arguments and empirical findings of this paper offer novel insights into the politics of health aid.

Ukrainians in Countries of Europe and North America Opposing Armed Aggression of the Russian Federation Against Ukraine

The article analyzes and emphasizes the important role of the Ukrainian diaspora in the countries of Europe and North America, it continues to play after the full-scale invasion of Ukraine by Russian armed forces. The support of Ukrainians by the diaspora in the conditions of insidious and unprovoked military aggression of the Russian Federation against Ukraine and Ukrainians is characterized. In particular, the current state of studying the role of Ukrainians abroad in European and North American countries is presented. It is traced how the Ukrainian diaspora, with the help of governmental and non-governmental international humanitarian organizations, continues to support the Ukrainian state from the beginning of the military conflict and helps to overcome the consequences of the armed expansion of the Russian Federation. It was revealed that after the armed aggression of the Russian Federation on the territory of the Ukrainian state, the Ukrainian diaspora actively joined the struggle for the preservation of Ukrainian statehood, ethnocultural space, ethnic culture and identity. It is shown that Ukrainian communities abroad have undertaken informational, diplomatic, financial, humanitarian, military, cultural and social work. It has been found that Ukrainians abroad constantly accelerate the victory of Ukraine in the Russian-Ukrainian war actively supporting refugees and displaced persons, providing diplomatic and financial support through international and humanitarian programs and funds, finding temporary shelter, promoting the flow of military, medical and humanitarian aid to Ukraine, limiting infoterror in the media and cyberspace. It is substantiated that with the assistance of Ukrainians abroad, social and humanitarian aid centers operate both from volunteers and from international charitable organizations. It was highlighted that Ukrainian embassies, in close cooperation with Ukrainians abroad, actively spread knowledge about Ukraine, its past and present, thereby contributing to the further consolidation of Ukraine as a strategic partner state with a long history, rich culture and clearly defined European and North Atlantic perspectives.

A comprehensive analysis of the correlation between foreign aid and energy security in emerging countries: Does institutional quality matter?

This paper provides the first empirical analysis of the nonlinear correlation between foreign aid and four elements of energy security: availability, acceptability, developability, and sustainability. Three key things can be observed from our estimates, derived from econometric methods applied to a sample of 17 emerging countries between 2002 and 2018. First, we confirm that foreign aid and energy security display a nonlinear relationship characterized by an inverted-U shape. If a country becomes highly dependent upon foreign aid at an early stage of its development, this may threaten the sustainability of its energy system. The inflows of foreign aid, however, turn out to have a positive effect on the energy system when they exceed a certain threshold. It should be noted that the “pollution haven” hypothesis for emerging economies only holds true for those countries that receive initial and small amounts of foreign aid. Second, our results provide additional evidence of the “technical obsolescence” effect, based on real-world data. It occurs when a high level of foreign aid is followed by a higher consumption of renewable and non-fossil fuel energy over time. In addition, foreign aid has a positive influence on energy security in terms of its availability, acceptability, developability, and sustainability when institutional quality is taken into account. As a result of this study, policymakers now have a new perspective on how to promote energy system security.

СТАБІЛІЗАЦІЯ ЕКОНОМІКИ КРАЇНИ В УМОВАХ КРИЗИ

Ukraine is currently facing difficult economic conditions caused by Russia's military expansion. At the same time, despite the negative consequences caused by the Russian aggression, the country's economy is showing positive dynamics towards structural changes. In such circumstances, it is important to analyse the methodology for stabilising the country's economy and to find effective forms of attracting international financial assistance, which is a significant factor of supporting the country in times of crisis. The article examines the issues of stabilisation of the country's economy in the context of the crisis. The article analyses forms and methods of stabilisation of the country's economy in crisis conditions. An empirical study of financial measures at the macro and micro levels that had a positive effect on the recovery of the economic situation in the country has been carried out. It is established that under the conditions of martial law, the country's economy has begun to gradually recover since the beginning of 2023. Despite the low production volumes, the overall financial performance is tending to improve. The expected growth in economic forecasts is explained by the fact that Ukraine's energy sector has withstood the air attacks of the aggressor country. Due to this, the economic performance of enterprises, primarily in the retail and service sectors, has improved. The improvement of households' expectations and the growth of state budget expenditures, thanks to international assistance, will support consumer demand. However, the destruction of production facilities and infrastructure, including energy infrastructure, will continue to limit economic activity, and its recovery will require significant resources. It is specified that inflation is decreasing faster than expected, which is facilitated by an adequate supply of food and fuel, a lower electricity shortage, and a favourable situation on the foreign exchange market. An analysis of the activity of other countries in providing assistance to Ukraine made it possible to note that international aid covers the balance of payments gap and helps to build up financial reserves. It has been found that, in general, the National Bank of Ukraine forms positive theses on improving the economic situation in the country for future periods. In conclusion, the main source of financing of the country's budget is international aid and a minor percentage of its own GDP. Due to the stable inflow of international aid, the economy's liquidity has improved. The created liquidity buffer creates the conditions for increasing internal expenditures and paying expenses and fulfilling external obligations in a timely manner.

A bi-level humanitarian response plan design model considering equity and efficiency—the example of Yemen

<abstract> <p>Yemen has suffered from a civil war since 2015, which caused the largest famine in the world at this time. People came in need of urgent humanitarian relief in all sectors. In this situation, the donor countries are offering funds to non-profit humanitarian organizations to help Yemen in critical sectors, such as food, health, water, education and other sectors. We propose a new bi-level optimization distribution model for large-scale emergency logistics in Yemen. The upper-level model aims to minimize the unmet demand. The lower-level model seeks to maximize the funds sent to affected areas that fulfill the needs of the affected people by appealing to the donor countries to increase the funds. This model ensures a satisfying rate of equity and efficiency distribution among aid recipients of all governorates of Yemen based on their needs. We consider in this work the top ten donor countries, the nine sectors of the sustainable development goals, the five top humanitarian organizations and twenty-two disastrous regions. The model is applied and validated using actual data collected from Yemen in 2021. The results indicate the necessity of redistributing funds to all governorates of Yemen according to their needs and the priority of the supporting sectors. This proposed model is essential to humanitarian relief decision-makers in general and workers in Yemen in particular as it ensures the continuous flow of aid from donors to beneficiaries and is equitable and effectively distributed. It also gives a glimpse of the importance of continuing to appeal for fundraising from the donors to increase funds and their importance to cover the most significant percentage of those affected.</p> </abstract>