Title
Aid tying and donor fragmentation Aid tying and donor fragmentation
Author
Faculty/Department
Institute of Development Policy and Management
Publication type
report
Publication
Washington, D.C. :World Bank, [*]
Subject
Politics
Economics
Source (series)
Policy research working paper ; 5934
Volume/pages
29 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
This study tests two opposing hypotheses about the impact of aid fragmentation on the practice of aid tying. In one, when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more aid to purchases from contractors based in their own countries. Alternatively, when donors have a larger share of the aid market, they may have stronger incentives to maximize the development impact of their aid by tying less of it. Empirical tests strongly and consistently support the latter hypothesis. The key findingthat higher donor aid shares are associated with less aid tyingis robust to recipient controls, donor fixed effects and instrumental variables estimation. When recipient countries are grouped by their scores on corruption perception indexes, higher shares of aid are significantly related to lower aid tying only in the lesscorrupt sub-sample. This finding is consistent with the argument that aid tying can be an efficient response by donors when losses from corruption may rival or exceed losses from tying aid. When aid tying is more costly, as proxied by donor country size and income, it is less prevalent. Aid tying is lower in the Least Developed Countries, consistent with the OECD Development Assistance Committee's recommendation to its members.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/f33b88/e5f0bed1.pdf
Handle