No. 43 - Assessing the allocation of Italian foreign aid

This paper provides an assessment of Italian aid policy during the period 1983-2006. In comparison with other donors (DAC and G-7), the main stylized facts are: persistently lower aid/GDP ratio, greater recourse to multilateral channels, a higher percentage of "tied" flows and relatively greater recourse to debt relief. Drawing on the empirical literature on aid allocation, we estimate the determinants of Italy's bilateral aid. We use three groups of explanatory variables, reflecting national-interest, humanitarian and selectivity-related motivations. We find that the distribution of Italian bilateral resources is significantly affected by both national-interest (like foreign policy or trade) and humanitarian motives, related to recipients' needs; the latter's role, in particular, seems to have strengthened over time. There is ample room for improving selectivity, i.e., the capacity to direct ODA flows to "deserving" countries, where better policies and institutions are likely to increase aid effectiveness.