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Other Working Papers
Abstract:
This paper argues that developed countries use foreign aid to foster “strategic development”,
i.e. development abroad that returns material benefits to aid donors. I first develop the idea
of strategic development and then show that much of the literature has confused non-altruistic
motives with non-development motives: many of the previous findings on aid allocation actually
support the idea of strategic development, while at the same time presenting evidence that
altruism plays a minor role in aid allocation. I then develop a model that allows donor utility
with respect to aid to be increasing in both development and in non-development concessions
that the recipient supplies to the donor in exchange for aid. A surprising conclusion follows once
we allow donors to pursue multiple strategic objectives with aid dollars. The model developed
here suggests that in situations where multiple recipients could serve as substitute providers
of a non-development good that is paid for (partially) through aid donations, the donor will
choose the recipient that offers the highest returns in terms of development to provide the
non-development good. This implies that potential development motives of donors have been
dismissed too easily based on the correlation between development aid and non-development
dyadic considerations.
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