Two visions of aid effectiveness and allocation are compared. The first, corresponding to the new aid paradigm, argues that aid is only effective if domestic policies are appropriate. The second, in contrast, argues that aid effectiveness depends on the external and climatic environment: the...

This paper presents an overview of the economics of international aid, highlighting the historical literature and the contemporary debates. It reviews the “trade-theoretic” and the “contract-theoretic” analytical literature, and the empirical and institutional literature. It demonstrates...