The existing empirical aid literature has focused on foreign aid provided by donor countries organized in the OECD’s Development Assistance Committee (DAC) and largely neglected the so-called new donors (exceptions include recent work on China and Arab donors). With respect to DAC donors, a consensus has emerged in the aid literature that the provision of foreign aid is not only driven by humanitarian motives, but also by political and commercial self-interests of the respective donor. In our recent article “The Needy Donor: An Empirical Analysis of India’s Aid Motives” (forthcoming in World Development, earlier working paper available here), we use project-level data provided by AidData to empirically analyze the determinants of India’s aid allocation decisions. We examine whether and how the mixed motives of “traditional” donors are also reflected in India’s aid policy.
Analyzing cross-sectional data on India’s aid commitments by the Ministry of External Affairs to 125 developing countries using probit and OLS regressions, we find that India’s aid allocation is partially in line with our expectations of the behavior of a “needy” donor. Three factors are characteristic of India’s aid allocation behavior.
First, most of India’s aid is given within its neighborhood. Although India today has aid programs running in almost all world regions, its aid allocation is still largely concentrated on South Asian countries (89.7% of total aid provided by the MEA in the 2008-2010 period, see figure below). The obvious exception is Pakistan, reflecting political tensions between both countries. India’s focus on countries in its region not only reflects the lower aid costs incurred by the poor donor country, but also India’s ambitions as a regional power.
|India’s aid allocation by country (2008-2010). Source: Own construction based on data from AidData|
Third, India’s political and commercial self-interests play an exceptional role in its aid allocation decisions. Like other providers of “South-South Cooperation,” India has never shied away from saying that its aid provides a “mutual benefit.” Indian aid is widely seen as an instrument to gain access to overseas markets for its goods and services, to grease the skids for Indian investment abroad, and also to acquire support for India’s bid for a permanent seat in the United Nations Security Council (see Danish scholar Peter Kragelund's good overview on India’s aid activities in Africa). Just recently, India used aid as a foreign policy tool when it cut aid to the Maldives over an investment dispute. Our empirical results confirm that commercial and political self-interests dominate India’s aid allocation. When we compare India’s aid allocation with that of other donors, we find that India’s political interests, proxied by bilateral voting alignment in the United Nations General Assembly, play a significantly larger role for India than for all traditional DAC donors in the analysis. Although our findings show that India’s own interests dominate its aid allocation, it may nevertheless be the case that India’s assistance is effective in terms of poverty reduction and other developmental goals, a possibility which merits further investigation.
Andreas Fuchs is an AidData Faculty Associate and a Postdoctoral Research Fellow at the Niehaus Center for Globalization and Governance at Princeton University. He is currently on leave from the Chair of International and Development Politics at Heidelberg University.
Krishna Chaitanya Vadlamannati is a Research Fellow at the Norwegian University of Science and Technology (NTNU) in Trondheim, Norway. He is also member of editorial committee of the Journal of Peace Research and visiting researcher at the Peace Research Institute Oslo (PRIO).