Drivers of Bilateral Aid of EU Member States: Evidence from a Time-Series Cross-Section Analysis

The paper leverages variation over time in individual (28) EU member states' bilateral aid per country category (least developed countries, lower-middle and upper-middle income recipients) to test for a systematic influence of diverse predictors on aid ratios during the contemporary period (2000-2017). Different categories of recipient countries are possibly subject to dissimilar influences (Tingley, 2010), which remains unaccounted for in empirical studies predominantly using aggregate levels of development assistance; this, therefore, may compromise empirically-based recipes for reducing aid volatility and increasing aid effectiveness, in particular in the least developed countries. We quantitatively investigate the explanatory power of main domestic variables (notably, government ideology and prevalence of social-democratic culture) and international factors (political and economic interests, emulation, and EU pressure), which represents one of few efforts in the aid literature to analyse developing aid in a comprehensive conceptual framework. Ours is also the first attempt to apply such a framework to the entire membership of the EU, that is, including Central and Eastern Europe, in particular. We draw on the existing theoretical and empirical research but also innovate. The analysis, which takes into consideration the methodologically-sensitive aspects of the data structure (unit heterogeneity, serial and contemporaneous correlation of residuals, as well as stationarity), yields results pointing to relatively different effects between the three recipient categories. In general, our analysis brings support to the notion that the donor-recipient relationship suffers from uncertainty in the case of the least developed countries, this problem being at least partly solved by donor emulation (see, e.g., Swiss & Longhofer, 2015), as well as follower behaviour, based on multilateral agencies’ aid allocations to these recipients; additionally, aid extended to this country group is also positively associated with a European donor’s commitment to socio-economic equality and, interestingly, right-wing governments. Aid to lower middle income countries is subject to European nations’ strategic interest, while in the case of upper middle income countries development aid during the period of 2000-2017 does not turn out a significant instrument of foreign policy and is characterised by a crowding-out phenomenon (e.g., Klasen & Davies, 2011). Importantly, our analysis speaks suggestively in favour of European aid regime being subject as much to social and normative forces as to rational influences; it, furthermore, provides grounds for tracing future aid relationships of EU members with recipient countries, depending on their economic development.