ABSTRACT
The allocation of aid among countries can legitimately reflect multiple objectives. Aid may be used to rebuild post-conflict societies, to meet humanitarian emergencies, or to support the strategic or commercial interests of the aid-giver. However, one core objective most commonly cited to support aid programs is poverty reduction. In this chapter, we estimate the allocation of aid that would maximize the reduction in poverty and compare it to actual allocations. Our principal finding is that the poverty impact of aid could be roughly doubled if donors made use of recent research findings on the impact of aid in deciding their aid allocation. To the extent that donors are interested in poverty reduction, the estimated ‘poverty-efficient’ allocation is directly useful for policy-makers. But, even where donors wish to pursue other objectives, this allocation is also useful, because it provides information on the opportunity cost (in terms of poverty reduction) of pursuing other objectives with aid resources.
