In this Policy Briefing we address the question of whether there is a coherent and consistent policy when it comes to giving development aid. While one would theoretically argue that aid provision should be based on objective criteria set out to optimize governments' behavior or people's welfare, we find that this is not the case. While specific countries may be optimizing their objectives in international aidgiving, the cumulative effect, particularly when it comes to European policy is incoherent and inconsistent. Coordinating development policy at the European level could alleviate this problem.

Guo Xu

Olaf J. de Groot

Tilman Brück

English

Research Papers in Economics

 
 
 
Tilman Brück, Olaf J. de Groot and Guo Xu 
 
© UK DEPARTMENT FOR INTERNATIONAL DEVELOPMENT 
· What determines the level of aid that 
a country receives? 
 
· Are aid flows coordinated between 
European countries? 
 
· Is there a common European policy 
with respect to development aid? 
POLICY BRIEFING 
November 2011 EUSECON Policy Briefing 11 
Does Security Play a 
Role in European 
Development Aid 
Policy? 
Summary: In this Policy Briefing we address the 
question  of  whether  there  is  a  coherent  and 
consistent  policy  when  it  comes  to  giving 
development  aid.  While  one  would  theoretically 
argue  that  aid  provision  should  be  based  on 
objective criteria set out to optimize governments’ 
behavior or people’s welfare, we find that this is 
not  the  case.  While  specific  countries  may  be 
optimizing  their  objectives  in  international  aid-
giving, the cumulative effect, particularly when it 
comes  to  European  policy  is  incoherent  and 
inconsistent.  Coordinating  development  policy  at 
the European level could alleviate this problem.  
 
 
 
 
 
 
 
 
 
Introduction 
Development  aid  is  generally  distributed  by  one 
country to the benefit of another one. However, it is 
not  always  clear  what  the  objectives  of  the  donor 
countries are. Do they simply want to contribute to the 
overall  welfare  of  the  world?  Or  do  countries  have 
their  own  agendas  when  deciding  to  distribute 
development funds? An aid regime could, for example, 
reward  specific  types  of  behaviour  (such  as 
improvements  in  democratisation  or  reductions  in 
corruption)  or  respond  to  recent  events,  such  as 
natural disasters or conflicts. Furthermore, aid policy 
could  even  be  used  to  achieve  domestic  objectives 
from the donor’s perspective, such as increasing the 
level of security by reducing the threat of terrorism 
growing in underdeveloped countries. 
In this Policy Briefing, we look at what determines the 
size  of  aid  flows  to  developing  countries.  We 
particularly  focus  on  Europe  and  the  question  of 
whether European countries follow similar strategies 
that would fit to a greater European development aid 
policy. This research is based in particular on Brück 
and  Xu  (2011),  which  was  produced  as  part  of  the 
EUSECON project. 
Aid levels versus aid accelerations. 
Previous research that looks at the provision of aid has 
often  considered  either  the  absolute  [or  average] 
levels  of  aid.  Alesina  and  Dollar  (2000)  find  that 2 | EUSECON POLICY BRIEFING 11 NOVEMBER 2011  
 
In theory, aid should flow to the poorest 
countries or those with the best governance 
poorer countries receive more development aid, but 
also that historical colonial ties and political alliances 
explain the amount of development aid in part. On the 
other hand,  Burnside  and Dollar  (2004)  do not find 
that other strategic considerations, such as recipient 
countries’ policies or their quality of governance have 
an impact on the aid provision. 
However, it is doubtful whether the questions these 
previous studies ask are particularly policy-relevant. 
Some countries simply receive more aid, possibly as a 
result of historical dependencies, whereas others do 
not  get  much.  For  this  reason,  we  look  instead  at 
changes in aid allocation: so-called aid accelerations. 
Such  accelerations  are  associated  with  specific  aid-
provision  changes,  and  we  can  thus  go  beyond 
country-specific  effects.  Furthermore,  we  overcome 
another pitfall in the existing literature, which is the 
averaging  of  multiple  years  of  data  for  single  data 
points. This causes researchers to miss out the specific 
points in time when the accelerations took place, thus 
making it impossible to find out whether there may be 
a direct cause for the acceleration. 
In order to identify aid accelerations, we use data from 
33 donors and 145 recipient countries for the period 
from  1960  to  2007  to  determine  whether  such 
accelerations took place and if so, what explains their 
occurrence.  The  data  we  use  comes  from  the  OECD 
Development  Assistance  Committee,  which  defines 
Overseas Development Aid as flows to countries which 
are  provided  by  official  agencies  and  aimed  at 
promoting  economic  development  and  welfare  in 
developing countries. Very importantly, this does not 
include military aid or peacekeeping aid.  
Inspired by Hausmann et al. (2005), we filter the data 
to identify individual moments in time where the aid 
going  to  a  specific  recipient  country  increased 
significantly  and  out  of  the  ordinary.  Based  on  the 
filter employed, we identify 215 aid accelerations for 
the total flow of all aid allocated between 1960 and 
2007,  which  translates  to  1.5  aid  accelerations  per 
country on average. The unconditional probability for 
any  country  during  any  year  to  undergo  an  aid 
acceleration  is  4%,  a  rate  that  is  remarkably  stable 
across decades, but also between regions. The Middle 
East has the highest probability with 4.7% and Eastern 
Europe and Central Asia have the lowest probability 
with  2.8%.  Even  when  splitting  across  donors,  the 
variation  is  still  small.  The  United  States’  and  the 
United Kingdom’s likelihood to see an aid 
acceleration  in  their  donations  is  4.5% 
and 4.4% respectively, while Sweden has 
the lowest rate with 2.8%. Evidence that 
the filter works can be seen from the fact 
that well-known aid accelerations, such as Egypt 1968, 
Afghanistan  2000  and  Iraq  2002  are  identified. 
Afghanistan is shown in Figure 1 as an illustration. 
The role of conflict in aid allocation 
The main theoretical criteria for how much aid should 
flow and to whom, can be divided into economic and 
political factors. According to the economic reasoning, 
aid should flow to the poorest countries, where it is 
most  needed  and  whether  it  yields  the  highest 
marginal return. According to political arguments, aid 
should flow to those needy countries that have “good” 
institutions, in order to reward good behaviour and to 
make  sure  that  as  little  aid  as  possible  is 
misappropriated through corruption.  
Figure 1 Aid accelerations identified in Afghanistan   EUSECON POLICY BRIEFING 11 NOVEMBER 2011 | 3 
 
Despite efforts in harmonizing foreign policy, 
aid allocation is incoherent and inconsistent 
However, do these theoretical arguments hold true 
in reality as well? To answer this question, we use 
data on the occurrence of conflict (Gleditsch et al. 
2002),  institutional  quality  (Marshall  and  Jaggers 
2009) and economic reforms (Wacziarg and Welch 
2008) and dummy variables for certain geopolitical 
events, such as the end of the Cold War and 9/11. 
Our  analysis  shows  that  the  occurrence  of 
international conflict in a country is associated with 
aid  accelerations,  while  civil  conflicts  are  not. 
Similarly,  countries  that  neighbour  international 
conflicts  (but  not  those  neighbouring  civil  conflicts) 
also  appear  receive  increased  levels  of  aid. 
Improvements  in  the  quality  of  governance,  in 
contrast with economic reforms, have a positive effect 
on  the  probability  of  aid  acceleration,  as  does 
declaring independence and the end of the Cold War. 
The  occurrence  of  9/11  does  not  seem  to  have 
changed  the  probability  of  aid  accelerations.  This  is 
somewhat  surprising,  since  new  arguments  for 
providing  aid  have  emerged  after  9/11,  particularly 
when it comes to using aid to increase security. 
International coordination between donors 
In addition to the overall flows of aid, it is possible to 
differentiate  the  aid  flows  across 
different donors in order to see if their 
preferences  differ.  Looking  at  the  ten 
largest  donors  worldwide,  it  appears 
that  different  donors  do  have  different  preferences. 
For example, both in the case of international conflict 
and positive regime change, only five out of ten donors 
increase  aid.  For  some  of  the  explanatory  variables, 
different  countries  even  respond  in  opposite  ways. 
Economic  liberalisation,  for  example,  increases  the 
probability  of  an  aid  acceleration  for  Spanish  aid, 
while  decreasing  the  probability  for  Japanese  aid. 
Similarly,  civil  conflict  has  a  positive  effect  on  aid 
flows  stemming  from  the  United  States,  Japan  and 
Norway, but a negative effect on aid from Sweden.  
The disaggregation also suggests that the net effect for 
accelerations based on total aid flow masks a diverse 
range  of  counteracting  allocation  rules.  If  countries 
were using the theoretically optimal allocation rules 
that  either  reward  countries  for  positive  policy 
changes  or  try  to  structurally  alleviate  suffering  in 
poor  countries,  different  countries  would  behave 
similarly.  However,  despite  the  repeatedly  declared 
efforts in harmonizing foreign and security policy, aid 
allocation is not only incoherent but the competing aid 
flows  tend  to  offset  each  other.  This  renders  the 
overall  EU  aid  accelerations  highly  unpredictable  by 
our model. 
Table 1 displays the calculated proximity index for a 
number  of  European  countries.  From  this,  it  can  be 
observed  that  the  countries  whose  are  most  similar 
are the United Kingdom and the Netherlands, followed 
by the French-German and German-UK aid flows. The 
most dissimilar aid flows come from Germany and the 
Netherlands and the Sweden-Spain pair.  
The  incoherence  of  European  aid  spending  can  be 
tested by looking at what the explanatory factors are 
of  total  European  aid,  as  opposed  to  looking  at  the 
separate aid flows of different countries. When doing 
so,  it  turns  out  that  very  little  actually  predicts  aid 
flows.  Different  from  the  useful  predictors  that  are 
able to pinpoint countries’ aid flows, very few of the 
predictors  are  significant  when  looking  at  total 
European  spending.  The  occurrence  of  conflict, 
economic  liberalization  and  increased 
democratization are all found to be irrelevant for aid 
flows. There is only minor evidence that the end of the 
Cold  War  and  the  occurrence  of  9/11  may  have 
positively  affected  the  probability  of  an  aid 
acceleration. 
  ESP  NLD  NOR  FRA  GBR  SWE  GER 
ESP  1  0.060  0.029  0.045  0.039  0.009  0.011 
NLD  0.060  1  0.042  0.047  0.079  0.047  0.009 
NOR  0.029  0.042  1  0.045  0.040  0.027  0.044 
FRA  0.045  0.047  0.045  1  0.051  0.050  0.070 
GBR  0.039  0.079  0.040  0.051  1  0.014  0.061 
SWE  0.009  0.047  0.027  0.050  0.014  1  0.050 
GER  0.011  0.009  0.044  0.070  0.061  0.050  1 
  Table 1 Proximity matrix for aid accelerations, calculated using the 
Jaccard Index 4 | EUSECON POLICY BRIEFING 11 NOVEMBER 2011  
 
Policy recommendations 
It  is  rational  and  justifiable  that  the  level  of  aid 
provision  is  co-determined  by  the  occurrence  of 
specific  events,  security-related  and  otherwise. 
However, policymakers should be cautioned that such 
event-based aid does not compete with structural aid 
that is given on basis of the core necessities of specific 
donor  recipients.  In  order  to  reduce  competition 
between these different aid flows, it would advisable 
to separate the budgets of emergency and structural 
aid. 
That is not to say that all European countries should 
be giving aid to the exact same countries, of course. 
There  could  still  be  large  differences  between 
countries for several reasons. First, different countries 
may  have  different  policy  preferences,  with  some 
rewarding  countries  that  develop  democratic 
institutions  and  others  simply  looking  at  where  the 
needs are greatest for example. Second, governments 
could  have  preferences  that  benefit  their  own 
domestic objectives, by increasing demand for specific 
industries, catering to a linguistic overlap or tying aid 
to the requirement to purchase goods from a specific 
donor  country.  Finally,  more  positively,  different 
countries could have different aid giving strategies on 
basis of their own strengths and weaknesses. Certain 
countries may have specific strengths in post-conflict 
reconstruction, while others may focus mostly on civic 
participation  or  issues  related  to  climate  change.  In 
this  case,  the  differentiation  of  policies  across 
countries would be a positive result of specialisation. 
On the other hand, while such specialisation may lead 
to more effectiveness in aid provision, there is a level 
of risk involved when certain countries or topics are 
only dealt with by specific donor countries. 
Credits 
This  EUSECON  Policy  Briefing  was  authored  by  Tilman 
Brück  and  Olaf  J.  de  Groot  from  the  German  Institute  for 
Economic Research and Guo Xu from the London School of 
Economics and Political Science. The views expressed in this 
briefing are the authors’ alone. 
 
 
EUSECON, or ‘A New Agenda for European Security Economics’ is a 
four-year collaborative research project, coordinated by DIW Berlin 
and funded by the Seventh Framework Programme of the European 
Commission. EUSECON analyses the causes, dynamics, and long-
term effects of both human-induced insecurity threats and 
European security policies. 
For more information on EUSECON, please visit our website: 
http://www.economics-of-security.eu 
Or contact us at: 
EUSECON 
Department of Development and Security 
German Institute for Economic Research 
Mohrenstrasse 58 
10117 Berlin, Germany 
Tel: +49-30-897889-277 
© Tilman Brück, Olaf J. de Groot and Guo Xu 2011 
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Does Security Play a Role in European Development Aid Policy?

http://www.diw.de/documents/publikationen/73/diw_01.c.391394.de/diw_eusecon_pb0011.pdf

Does Security Play a Role in European Development Aid Policy?

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