Interactions Among Donors' Aid Allocations : Evidence from an Exogenous World Bank Income Threshold
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 interp...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/09/20222696/interactions-among-donors-aid-allocations-evidence-exogenous-world-bank-income-threshold http://hdl.handle.net/10986/20377 |
| Summary: | 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. |
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