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Handbook on the Economics of Foreign Aid

Edited by B. Mak Arvin, Professor of Economics and Byron Lew, Associate Professor of Economics, Trent University, Canada
It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances. Several contributions provide new analytical insights or empirical evidence on different aspects of aid. As a whole, the book demonstrate how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.
Extent: 648 pp
Hardback Price: $335.00 Web: $301.50
Publication Date: 2015
ISBN: 978 1 78347 457 8
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Paperback Price: $65.00 Web: $52.00
Publication Date: 2017
ISBN: 978 1 78347 458 5
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  • Development Studies
  • Development Economics
  • Development Studies
  • Economics and Finance
  • Development Economics
  • Politics and Public Policy
  • International Relations
It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances.

Several contributions provide new analytical insights or empirical evidence on different aspects of aid, including how aid may be linked to trade and the motives for aid giving. As a whole, the book demonstrates how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.

In addition to students, academics, researchers, and policymakers involved in development economics and foreign aid, this Handbook will appeal to all those interested in development issues and international policies.
‘Today’s questions regarding foreign aid centre around aid allocation dynamics, the impact on trade and growth for receivers as well as donors, and, quite frequently, on aid effectiveness. The inter-relationship between aid and politics are also topics of high interest. These are precisely the issues that the Handbook edited by B. Mak Arvin and Byron Lew deals with. In more than 30 contributions, some highly renowned development scholars use the theoretical state of the art combined with empirically based econometric approaches to analyse various issues in the foreign aid field. It is a great pleasure for science-oriented readers to find a wealth of findings derived from hard data and rigorous analytical methods. The book is an excellent contribution to the current foreign aid discussion.’
– Siegfried Schönherr, Ifo Institute for Economic Research, Germany

‘A title like Handbook on the Economics of Foreign Aid is ambitious; it promises coverage of literature that spans from theory to empirics, from macro to micro levels of analysis, from positive to normative economics. This Handbook fulfills this ambition 100 percent. It will be the single place that people will go to get a state-of-the-art survey of a particular issue. Some chapters are written by established experts in the area, others by newcomers that bring a fresh view on the issues involved. All in all, a book that future researchers in foreign aid must consult.’
– Pascalis Raimondos, Copenhagen Business School, Denmark

‘This edited volume offers the reader a particularly useful addition to our understanding of the economics of foreign aid. The author list is impressive and includes scholars from all corners of the planet. Matters of theory are dealt with carefully and intelligently and the empirical analysis is first class. The volume has all the hallmarks of a lasting contribution.’
– Parviz Dabir-Alai, Richmond University, UK

‘This Handbook provides a tremendously useful overview of the economics of foreign aid. It contains contributions by well-established and known scholars of foreign aid as well as by many fresh new voices, from both the developed and the developing world. It looks at both the determinants of aid, broadly conceived, and the manifold consequences of aid. It does so sometimes from a theoretical viewpoint, but mostly it is empirically oriented, aimed at providing us with better understanding. For anyone seeking to come up to speed with the state of the art in this important area of study, this Handbook is a first choice.’
– Eric Neumayer, London School of Economics and Political Science, UK

‘This Handbook thoroughly examines the allocation of foreign aid, aid effectiveness, and aid policies with an impressive group of contributing scholars and experts in this field. In-depth theoretical and advanced empirical analysis of the pertinence of the economics of foreign aid and international relations makes the Handbook an excellent read.'
– Sahar Bahmani, University of Wisconsin, Parkside, US
Contributors: E. Aguayo, E. Alvi, B.M. Arvin, S.A. Asongu, E. Bland, C. Boussalis, J. Brambila-Macias, S. Brown, R. Calleja, L. Chauvet, A. Das, H. Doucouliagos, V.Z. Eichenauer, G.S. Epstein, P. Exposito, S. Feeny, D. Fielding, I.N. Gang, F. Gibson, R. Gounder, P. Guillaumont, M.-C. Guisan, N. Hermes, P. Hühne, A.L. Islam, A. Isopi, S. Kablan, C. Kilby, A. Kumar, S. Lahiri, R. Lensink, B. Lew, I. Martinez-Zarzoso, I. Massa, G. Mavrotas, M. McGillivray, B. Meyer, K. Michaelowa, O. Morrissey, D. Mukherjee, P. Nunnenkamp, M. Paldam, C. Peiffer, R. Pradhan, M.G. Quibria, B. Reinsberg, D. Rowlands, M. Salois, J. Serieux, D. Sogge, S. Torrance, S. Tezanos Vázquez, L. Wagner

Contents:

1. Introduction
B. Mak Arvin and Byron Lew

PART I AID FLOWS AND THE ALLOCATION OF AID
2. Performance Based Allocation (PBA) of Foreign Aid: Still Alive?
Patrick Guillaumont and Laurent Wagner

3. Aid and Reverse Flows: A Global Analysis
Anupam Das and John Serieux

4. Determining Aid Allocation Decision-Making: Towards a Comparative Sectored Approach
Caryn Peiffer and Constantine Boussalis

5. Samaritan’s Dilemma, Time-Inconsistency and Foreign Aid: A Review of the Theoretical Models
Alok Kumar

6. MDGs and International Cooperation: An Analysis of Private and Public Aid and the Role of Education
Maria-Carmen Guisan, Eva Aguayo, and Pilar Exposito

7. Geographical Allocation of Aid: Lessons from Political Economy
Sergio Tezanos Vázquez

8. China's Aid and FDI Flows to Africa: Strategic Interest or Economic Motivation?
Byron Lew and B. Mak Arvin

PART II AID AND TRADE
9. Inter-Linkages of Foreign Aid and Trade Policy in Trade-Theoretic Frameworks
Sajal Lahiri

10. Aid for Trade: Assessing the Effects on Recipient Exports of Manufactures and Primary Commodities to Donors and Non-Donors
Philipp Hühne, Birgit Meyer and Peter Nunnenkamp

11. Aid for Trade: The Case of Asia and Oceania Nations
Rukmani Gounder

12. The Trade Effects of Foreign Aid - An Empirical Perspective
Inmaculada Martinez-Zarzoso

13. Foreign Aid, International Trade, and Financial Crises: A Developing Country Perspective
Jose Brambila-Macias, Isabella Massa, and Matthew Salois

PART III IMPACT OF AID
14. The Macroeconomic Impact of Aid in Recipient Countries: Old Wine in New Bottles?
George Mavrotas

15. Foreign Aid, Economic Growth, FDI, and Trade Openness in Lower Middle-Income Countries: A Dynamic Panel Data Analysis
Rudra Pradhan and B. Mak Arvin

16. Informal Influence on Multilateral Lending: The Case of the Inter-American Development Bank
Elizabeth Bland and Christopher Kilby

17. Donors Helping Themselves
David Sogge

18. Aid and Corruption: an Incentive Problem
Alessia Isopi

19. The Evolving Debate of the Effect of Foreign Aid on Corruption and Institutions in Africa
Simplice A. Asongu

PART IV AID EFFECTIVENESS
20. Finally a Breakthrough? The Recent Rise in the Size of the Estimates of Aid Effectiveness
Hristos Doucouliagos and Martin Paldam

21. On the Heterogeneous Impact of Aid on Growth: A Review of the Evidence
Lisa Chauvet

22. Aid, Growth, Policies, and Fragility
Mark McGillivray and Simon Feeny

23. Does Real Exchange Rate Appreciation Undermine Aid Effectiveness? Evidence from Sub-Saharan Africa
David Fielding and Fred Gibson

24. The Effects of Education Aid on Primary Schooling in Developing Countries
Eskander Alvi and Debasri Mukherjee

25. A Case Study of Aid Effectiveness in Bangladesh: Development with Governance Challenges
M.G. Quibria and Anika L. Islam

26. Foreign Aid to Foster Greener Cities: What Do We Know?
Sandrine Kablan

PART V AID POLICIES
27. Foreign Aid and Policy Coherence for Development
Stephen Brown

28. Making Aid Work: Governance and Decentralization
Gil S. Epstein and Ira N. Gang

29. Donor Competition for Influence in Recipient Countries
Rachael Calleja and Dane Rowlands

30. The Rise of Multi-Bi Aid and the Proliferation of Trust Funds
Bernhard Reinsberg, Katharina Michaelowa, and Vera Z. Eichenauer

31. Aid and Taxation
Oliver Morrissey and Samantha Torrance

32. Aid and Microfinance
Niels Hermes and Robert Lensink

Index