Strategic Donor Competition in Foreign Aid - Evidence from a Spatial Panel Model for Sub-Saharan Africa
Do donor countries react to aid flows of others? Are economic and political competitions between donors a reason for this strategic interaction? Through ongoing trends of Globalization and the emergence of new economies, developing countries in Sub-Saharan Africa are enabled to cooperate with traditional western but also new donors
like BRICS countries and specifically China. In the manner of a South-South narrative, non-DAC countries have used foreign aid to gain a significant influence and challenge the ancient foreign aid architecture. This paper aims at explaining underlying patterns of how donors react in a globalized foreign aid market. In order to measure the responsiveness
of aid allocators to external pressures, we develop a spatial lag panel model by including spatially competition-weighted lag aid shares of other donors to the same recipient country. The analyses conducted provide evidence in favor of a positive relationship between a donor’s engagement in a specific recipient country and other donors
for which this recipient is of similar strategic importance. For political competition no significant effect could be measured. The research shows heterogenous reactional patterns for different countries and might provide useful information to understand donors behavior in times of an increasingly competitive aid market and give a further clue about how donor countries interact when allocating their foreign aid resources.