Instrumental Philanthropy: Commercial Interests and the Geographical Distribution of Foreign Aid

‘Trade, not aid’ has long been a catchphrase in international development discourse. The logic underpinning this slogan is that trade and private investment may serve as substitutes for development assistance and may be preferable to aid both because they are more effective means of promoting development objectives and because they do not siphon off resources from public coffers. Using a dataset that covers development assistance flows from 22 donor countries to 187 aid recipients from 1980 to 2002, this analysis evaluates whether the ‘trade, not aid’ logic has in practice driven bilateral aid allocation decisions. We find that rather than allowing trade or investment to displace foreign aid flows, donor countries have dispersed aid in order to reinforce existing commercial ties with recipient countries. Developing countries that have attracted private resource flows more easily have also been privileged as aid recipients, while countries that are less desirable as commercial partners tend to receive less aid.