Social and Community Development Practice

Abstract

It is puzzling that India, which has a large domestic constituency of people suffering from underdevelopment, chronic poverty and mal-governance, is emerging as an important aid donor.With the intension of learning why poor countries provide foreign aid, this article is the first to econometrically analyze India's aid allocation decisions.First, we utilize cross-sectional data on aid commitments by the Ministry of External Affairs to 125 developing countries, obtained in US dollars from AidData for the 2008-2010 period.Second, we compare India's bilateral aid allocation with that of other donors.Our findings show that India's aid allocation is partially in line with our expectations of the behavior of a "needy" donor.Commercial and political self-interests dominate India's aid allocation.The importance of political interests is found to be significantly larger for India than for all DAC donors.Moreover, we find that countries which are closer geographically are favored, and that countries at a similar developmental stage are more likely to enter India's aid program.

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