Re-thinking the aid-growth relationship : A network approach

We characterize the topological properties and evolution of the OECD foreign aid network and explore the efficacy of network measures to illuminate the impact of aid. Viewing the OECD foreign aid community as an interdependent and complex system, we characterize not only the amount of aid but also the position of both donor and recipient within the network. We find that the degree centrality of the recipient, with an edge inclusion threshold that sets a minimum share of a donor's aid to a particular recipient, is significantly correlated with the growth impact of that donor's aid. Contrarily, aid is uncorrelated with growth with a recipient-side filter on the importance of the donor to the recipient. These results suggest that the importance of a recipient within the donor's network, rather than the volume of aid alone, is associated with the growth impact of bi-lateral aid. We explore mechanisms for these findings that include the complementarity of aid from multiple attentive donors. Our findings speak to the aid-puzzle and suggest that network metrics may illuminate non-obvious channels of aid impact.