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Gilles Nancy and Boriana Yontcheva
This paper studies the aid allocation of European nongovernmental organizations (NGOs). Once population is controlled for, poverty consistently appears as the main worldwide determinant of NGO aid allocation. NGOs do not respond to strategic considerations. Their funding source does not seem to exert a great influence on their aid allocation decision. We also find differences across regions. Militarization and the political nature of the regime of the recipient country affect aid allocation in the Middle East. Life expectancy influences aid allocation in countries in the Western Hemisphere and the Middle East.
Gilles Nancy and Boriana Yontcheva

main worldwide determinant of NGO aid allocation. NGOs do not respond to strategic considerations. Their funding source does not seem to exert a great influence on their aid allocation decision. We also find differences across regions. Militarization and the political nature of the regime of the recipient country affect aid allocation in the Middle East. Life expectancy influences aid allocation in countries in the Western Hemisphere and the Middle East. The paper is organized as follows. Section II presents the literature on foreign aid allocation. Section III

Boriana Yontcheva and Mrs. Nadia Masud
This paper assesses the effectiveness of foreign aid in reducing poverty through its impact on human development indicators. We use a dataset of both bilateral aid and NGO aid flows. Our results show that NGO aid reduces infant mortality and does so more effectively than official bilateral aid. The impact on illiteracy is less significant. We also test whether foreign aid reduces government efforts in achieving developmental goals and find mixed evidence of a substitution effect.
Boriana Yontcheva and Mrs. Nadia Masud

government to a recipient one, which is the standard measure in the literature, and aid projects led by international non-governmental organizations (NGOs) in developing countries. We choose the latter measure of aid for two reasons: first, as NGOs play an increasingly prominent role in the development scene and channel a growing share of development assistance, it becomes necessary to verify whether NGOs are effective in reducing poverty. So far, evaluations of NGO aid have been conducted solely at the project level. Second, as NGOs have been shown to allocate aid

International Monetary Fund. External Relations Dept.

T he debate over aid effectiveness continues unabated, but the economic literature has so far focused almost exclusively on official bilateral aid. Nongovernmental organizations (NGOs), however, account for a growing share of development assistance, and the proponents of NGO aid argue that it is allocated for the “right” reasons and is distributed directly at the grassroots level. Therefore, NGO aid is considered untainted by the two sins commonly attributed to official bilateral aid—namely, that it is given for political reasons unrelated to development and

International Monetary Fund. Research Dept.

deaths per 1,000 births. The effect can be seen as a lower bound of the actual effect, as not all health aid is spent on reducing infant mortality. Using a dataset of both bilateral aid and nongovernmental organization (NGO) aid flows, Masud and Yontcheva (2005) find that NGO aid reduces infant mortality and does so more effectively than official bilateral aid. The impact on illiteracy is less significant. References Arellano , Cristina , Aleš Bulíř , Timothy Lane , and Leslie Lipschitz , 2005 , “The Dynamic Implications of Foreign Aid

International Monetary Fund. External Relations Dept.
The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy. www.imf.org/external/pubs/ft/survey/so/home.aspx
Gilles Nancy and Boriana Yontcheva

Front Matter Page IMF Institute Authorized for distribution by Roland Daumont Contents I. Introduction II. What Do We Learn from the Literature? III. Dataset, Stylized Facts, and Methodology A. Data on Nongovernmental Aid B. Explanatory Variables C. Stylized Facts D. Methodology IV. Results A. Determinants of NGO Aid Allocation: Worldwide and Regional Results B. The Joint Effect of Militarization and Political Institutions V. Conclusion References Appendixes A. Countries in Sample by Region B. Data Description

International Monetary Fund. Research Dept.

/38 “Providing Official Statistics for the Common Market and Monetary Union in the Gulf Cooperation Council (GCC) Countries: A Case for ‘Gulfstat’” Al-Mansouri, Abdulrahman K.L.; Dziobek, Claudia No. 06/39 “Does NGO Aid Go to the Poor? Empirical Evidence from Europe” Nancy, Gilles; Yontcheva, Boriana No. 06/40 “Macroeconomic Challenges with EU Accession in Southeastern Europe: An Overview” Sorsa, Piritta No. 06/41 “Forecasting ECB Monetary Policy: Accuracy Is (Still) a Matter of Geography” Berger, Helge; Ehrmann, Michael

Mr. Antonio Spilimbergo

growth, rather than its direct effect. Masud and Yontcheva (2005) examine the differential impact of two types of foreign aid (bilateral aid and aid provided by nongovernmental organizations (NGOs)) on infant mortality and illiteracy in low-income countries. NGO aid was found to decrease infant mortality through increased total health spending (i.e., the sum of such spending by the government and NGOs), whereas bilateral aid did not have an effect, since it largely crowded out domestically financed government spending. Cross-country analyses have also looked at how