Aid Allocation across Sectors : Does aid fit well with recipients ' development priorities ?

This paper investigates whether aid flows to developing countries fit well with their development priorities. In particular, we examine aid allocation across sectors in a given recipient country by using sectoral data on aid and indicators that measure the recipient’s need for aid in each sector. The data show that inter-recipient aid allocation reflects the recipient’s need. However, we found no evidence that inter-sectoral allocation fits with national priorities except in highand middle-income East Asian countries. Our evidence shows that the quality of bureaucracy and corruption in recipient countries impede efficient inter-sectoral allocation. keywords: Aid allocation; Donor performance; Foreign aid; Aid coordination JEL classification: F35; O10; O19 ∗This research is a part of the project “Economics of Foreign Aid” undertaken at the Research Institute of Economy, Trade and Industry (RIETI). The author would like to thank RIETI for generous financial support toward the project. The author is also grateful to Yasuyuki Sawada and members of the project for helpful comments and suggestions. The opinions expressed and arguments employed in this paper are the sole responsibility of the author and do not necessarily reflect those of RIETI or the Ministry of Economy, Trade and Industry of Japan. †Faculty of Economics, Kansai University, 3-3-35 Yamatecho, Suita, Osaka 564-8680, Japan, Phone:+81 6 6368 0622, E-mail address: hkasuga@ ipcku.kansai-u.ac.jp RIETI Discussion Paper Series 08-E-039