Efficient and fair allocation of aid

Abstract

This paper proposes a model of aid allocating which aims to equalize the opportunity between recipient countries to reduce the poverty, in particular the millennium development goal of reducing the poverty by half. The model also takes into account the natural deficit which is defined by the gap between the growth rate required to reach this millennium goal and the actual growth rate observed in the recipient country. The resulting optimal aid allocation is computed using the estimation of the growth equation. The latter takes into account effects of aid and structural handicaps which are represented by the economic vulnerability index and lack of human capital. We also perform a simulation study which shows a substantial difference between the aid allocation obtained with the Collier-Dollar (2002) criterion and that obtained with our model.
Citation

Guillaumont, P., Nguyen-Van, P., Pham, T. K. C., & Wagner, L. (2015). Efficient and fair allocation of aid. Working paper series BETA, 2015-10.