How Should the Official Development Assistance be distributed?

The Official Development Assistance, as grants or loans, is limited. Donors are worried about how to assign resources efficiently. How to assign resources is an issue of concern among scholars; international relations and politics have been useful for the creation of assignment models of economic assistance.

However, academic models do not answer the questions that donors face when choosing beneficiaries. For instance, some ask whether one should assist fragile or undeveloped countries… If the fragility of the state is a consequence of the government, should one help anyways?

When answering these questions a new focus on the Official Development Assistance is used. Instead of analyzing the impact of help in the reduction of poverty, the economy of goods framework is used to measure the consumer’s surplus of the beneficiary.  What is more, the surplus of the consumer is determined as the difference between the marginal price of the international exchange in the country and the price that the country pays for the help. It is possible to measure this because, contrary to previous years, the developing countries have a public credits rating.

The essay infers that the cost of international loans relates to the credit scores from the perspective of the classification agencies. Based on this, the authors build a model in order to estimate the relation between the credit classification and different economic variables.

The results of the model are used in two ways: to predict credit classification for those countries which do not have them and to infer the importance of each variable (such as per capita income, the government score, the levels of debt, and so on).

Taking into account the essay, it is possible to say that, in general, more help should go to poor countries and to those with good governments. Also, the results promote the help to small islands and under develop countries with economic volatility.

Naturally, expanding economic help to some countries implies fewer funds for others.  However, there are other loans from bilateral and multilateral institutions that may help those countries adversely affected.

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