Abstract:
This paper examines how developed countries allocate foreign aid to less developed countries. In
giving aid, countries act on a variety of motives that have received much attention in academic
literature. I focus on three motives: geopolitical, commercial, and humanitarian. Once being
motivated to give aid, a donor must decide how it will do so. Broadly, the donor can use bilateral
or multilateral channels – it can act alone or with its peers. Each method comes with particular
costs and benefits for donors, and one channel might better serve certain motives than another
might. The primary task of this work is to identify for which criteria major donors exhibit strong
channel preferences.1
Donors exhibit a strong multilateral bias in allocating on democracy (humanitarian) and capital
openness (commercial). These criteria share certain characteristics that make them likely
candidates for multilateral channels. First, both objectives are widely shared by major western
donors. Second, they both confer broad benefits that are difficult for donors to particularize to
certain interest groups. Third, they are critical aspects of a country’s political and economic
control, requiring large-scale coordinated efforts if donors hope to induce changes in recipient
governments. By expressing these preferences through multilateral channels, donors capitalize on
these collective action benefits multilaterals confer. Donors (aside from the United States) also
exhibit a strong multilateral bias in supplementing US military support. Here, in pursuing their
geopolitical interests, donors capitalize on the legitimacy benefits offered by multilateral
agencies.
By contrast, donors express strong bilateral biases with respect to former colonies and property
rights. Colonial history is a nearly exclusive relationship among donors and recipients, the benefits of which donors are not inclined to share with other donors. Nor should we expect
donors to be able to solicit other donors to support them in reaping these exclusive gains. Though
property rights confer broad-based benefits, they do not enjoy as uniformly expressed preferences
as do capital openness and democracy. Property rights also pose much less threat to the
autonomy of recipient governments than does democracy or capital openness, making the need
for coordinated action less acute.
The differences in how donors use multilateral agencies for allocating aid helps to shed light on
why they use them. Multilateral agencies offer donors legitimacy in their geopolitical behavior
and provide valuable collective action mechanisms for pursuing common goals that have broad
benefits and face strong opposition. These results highlight legitimacy and collective action as
two primary benefits of multilateral aid agencies and help explain why donors employ both
bilateral and multilateral channels in the manner and to the extent they do in giving aid.
