Modelling inter-temporal aid allocation: a new application with an emphasis on Papua New Guinea

This paper models the inter-temporal allocation of foreign development aid to Papua New Guinea (PNG). A formal theoretical model of aid allocation is developed, in which aid to any one country is determined jointly with aid to all other recipient countries. This is recognized in the econometric application of this model, which involves simultaneously modelling aid to a number of countries in addition to PNG. Results based on data for the period 1969-99 indicate that both recipient need and donor interest variables determine the amount of foreign aid to PNG and most other countries under consideration.