Three Essays on the Economics of Foreign Aid

Recent years have seen a burgeoning interest in the issue of foreign aid especially in the context of developmental economics. As foreign aid is designed to help those less-privileged nations with developmental objectives such as poverty reduction and/or economic growth, fundamental questions include whether aid has been effective and what motivates donors to provide aid. This dissertation is composed of three essays that examine different issues concerning foreign aid. First, I focus on the Millennium Development Goals (MDGs) and its impact on aid allocation among sectors. If specification of the MDGs affected aid flows, it should be observed that more financial resources were given after the MDGs were announced. Moreover, sectors associated with the MDGs should have received more aid. Second, researchers do not agree on the effect of aid on the recipient countries’ economic growth. I apply Social network theory to analyze the aid environment as a two-mode network. Network-based indicators are developed to capture aid connectivity and I find a positive relationship between the aid connectivity and the recipient countries’ average annual growth of GDP. Third, I look at two donors (South Korea and Turkey) who have transitioned from aid recipients to donors. Having experienced rapid economic development while receiving foreign assistance, these two nations may have a better understanding of how to make aid more effective for recipients. I then compared their aid allocation patterns with traditional donors