Forum Numerica - Applying Network Tools to understand Foreign Aid Performance


Pr Raja Kali
University of Arkansas



Over forty years of conventional economic analysis has not reached consensus on the effect of foreign aid on recipient country growth.  We provide new insight into this relationship by using a network approach to characterize the topological properties of the OECD foreign aid network.  Viewing the OECD foreign aid community as an interdependent and complex system, we characterize not only the amount of aid but also the position of both donor and recipient within the network. We find that the degree centrality of the recipient, with an edge inclusion threshold that sets a minimum share of a donor’s aid to a particular recipient, is significantly correlated with the growth impact of that donor’s aid. Contrarily, aid is uncorrelated with growth with a recipient-side filter on the importance of the donor to the recipient. These results suggest that the importance of a recipient within the donor’s network, rather than the volume of aid alone, is associated with the growth impact of bilateral aid.  We explore mechanisms for these findings that include the complementarity of aid from multiple attentive donors. Our findings speak to the aid-growth puzzle and suggest that network metrics may illuminate non-obvious channels of aid impact.
About the speaker
Raja Kali is a professor in Economics and the ConocoPhillips Chair in International Economics & Business. He received his Ph.D. and M.A. from the Universiy of Maryland at College Park. He also holds a B.Sc. in Economics from the University of Calcutta. His areas of research include networks in trade and finance, industrial organization, development economics, and economics & finance of emerging markets.