Effective Development Aid: Selectivity, Proliferation and Fragmentation, and the Growth Impact of Development Assistance

Takashi Kihara
JEL codes: 
ADBI Working Paper Series

This paper examines several indicators of effective development aid, focusing on the contributions of major bilateral donors. The empirical analyses of selectivity for effective aid delivery revealed that, taking a long-term and regional perspective, some major donors including Japan have been as selective in delivering their aid as some countries well-known for their selective aid delivery, such as Denmark. Japan has provided higher aid for the countries with better policy and governance, and higher grant aid for the countries with lower income, particularly in Sub-Saharan Africa. Indexes for donor proliferation and aid fragmentation, which measure increased transaction costs of recipient countries, were calculated using methods set out in existing studies on the topic, but over the longer term and by region. It is demonstrated that aid from some major donors in Asia, the Pacific, and Europe, including Japan, has proliferated less than the aid programs of most other countries.
Official Development Assistance (ODA) provided by Japan since 1990 has been more closely correlated with the growth of GDP per capita of recipient countries than that of other donors. The growth acceleration effects of short-impact aid (SIA) such as aid for infrastructure have been stronger than those of other categories of aid such as aid for education, aid for health, or humanitarian emergency aid. While other major donors reduced the share of SIA in their total ODA in the 1990s and the early 2000s, Japan maintained its share of such aid to sustain the growth of recipient countries. The aid-growth nexus also demonstrates the larger contribution of Japan than those of other major donors to the growth of recipients. Overall, aid from some donor countries, including Japan, that ranked lower in short-term assessments has turned out to be of good quality in the longer run or from regional perspectives, a finding confirmed by recent literature on the quality of aid.