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Donor Competition for Aid Impact, and Aid Fragmentation
Author:
Mr. Kurt Annen null

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Mr. Luc Moers
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 204
Language:
English
Publication Date:
01 Aug 2012
DOI:
https://doi.org/10.5089/9781475505542.001
ISBN:
9781475505542
ISSN:
1018-5941
Pages:
37
Keywords:
WP; aid allocation; donor competition; Foreign Aid; Aid Effectiveness; Aid Fragmentation; Donor Coordination; donor ranking; donor fragmentation; Budget planning and preparation; Competition; Poverty reduction; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper shows that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium, explaining aid fragmentation. This equilibrium may be inefficient even without fixed costs, and the inefficiency increases in the equality of donors budgets. The paper presents empirical evidence consistent with theoretical results. These imply that, short of ending donors maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Moreover, since policies to increase donor competition in terms of aid effectiveness risk reinforcing relativeness, they may well backfire, as any such reinforcement increases aid fragmentation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund