Development assistance is increasingly used to fund the provision of global public goods. However, in this case, the traditional classification of donor interests and recipient needs is not appropriate for analyzing donors’ aid allocation decisions. Given the non-excludability characteristic of global public goods, aid targeting the provision of such goods should not flow to those places with the greatest needs – as assumed by the existing aid allocation literature – but to those where they can be provided most efficiently.
After explaining the theoretical rationale behind this claim, we empirically show its implication at the example of aid for climate change mitigation (a global public good): At first glance, aid for mitigation appears much more donor-interest driven than aid for adaptation (a private or local public good) or than general aid where the consideration of recipient need seems to play a greater role. The picture changes when including appropriate control variables for mitigation efficiency. As the latter is positively correlated with economic development, donors allocating their aid in line with mitigation efficiency may be wrongly accused of allocating aid in their own interest.
While the control for efficiency-related variables solves the attribution problem for individual public goods, it is difficult to conceive of appropriate controls at the aggregate level. This represents a major challenge for the aid allocation literature and implies that holding donors accountable for their overall aid portfolio will become difficult in the future.