Interactions Among Donors' Aid Allocations : Evidence from an Exogenous World Bank Income Threshold
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World Bank Group, Washington, DC
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This study investigates the effects of
the World Bank's exogenously-determined income
threshold for eligibility for concessionary International
Development Association (IDA) loans on the allocations of
bilateral donors. The donors might interpret the World
Bank's policies and allocations across recipients as
informative signals of where their own aid might be used
most effectively. Alternatively, other donors might
compensate for reduced IDA allocations by increasing their
own aid. This paper shows that the signaling effect
dominates any crowding out effects. The analysis uses panel
data with country fixed effects and finds that aid from the
bilateral donor countries is significantly reduced after
countries cross the IDA income cutoff, controlling for other
determinants of aid. Allocations by other donors are not
sensitive to actual IDA disbursements, only to the IDA
income threshold. Because crossing the income cutoff for
eligibility significantly reduces aid levels from other
donors as well as from the World Bank, government officials
in recipient countries may have an incentive to manipulate
their national accounts data to understate per capita income
when it is near the IDA threshold. However, tests for
"bunching" of observations just below the income
threshold find no evidence to support data manipulation
concerns. These findings suggest that graduation from IDA
should be an even more gradual process than it already is,
to dampen the sharp drops in aid experienced by countries
after crossing an arbitrary income threshold.
Palabras clave
AID, AID AGENCIES, AID ALLOCATION, AID FLOWS, AID PROGRAMS, BANK LENDING, BILATERAL AID, CAPITAL MARKETS, DEBT, DECISION MAKING, DETERMINING ELIGIBILITY, DEVELOPMENT ASSISTANCE, DEVELOPMENT BANKS, DEVELOPMENT ECONOMICS, DEVELOPMENT ISSUES, DEVELOPMENT POLICY, DEVELOPMENT RESEARCH, DONOR AGENCIES, DONOR COORDINATION, ECONOMETRICS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMIC SYSTEMS, ECONOMIC THEORY, EQUATIONS, EXPORTS, FASHIONS, FREE RIDER, GDP, GROWTH PROJECTIONS, IDA, INCLUSION, INCOME, INCOME LEVELS, INFLATION, INTERNATIONAL AID, INTERNATIONAL DEVELOPMENT, INTERNATIONAL DEVELOPMENT ASSOCIATION, MIDDLE INCOME COUNTRIES, PER CAPITA INCOME, POLITICAL ECONOMY, POSITIVE EFFECTS, PUBLIC GOOD, STRATEGIC COMPLEMENTARITY, TARGETING, WORLD DEVELOPMENT INDICATORS