Advanced countries have pledged to mobilize additional financial resources to developing countries, including funding from multiple sources other than official development assistance (ODA), known as foreign aid. However, the effect of the novel coronavirus pandemic has raised doubts about the feasibility of such a pledge, highlighting, once again, the possible role of ODA and the importance of explaining its allocation, which could be of vital relevance for understanding its effectiveness. This study analyzes a vast number of bilateral and multilateral donors by applying a novel methodology in the context of aid allocation – principal-component factor analysis – covering the period 1990–2015. The results revealed four distinct clusters of donors: (i) the proportionally largest Western European donors, characterized by a significant number of beneficiaries, especially low-income countries; (ii) donors that are predominantly driven by structural links with recipients, especially links derived from colonial connections; (iii) a group of mainly Eastern European donors who are engaged with lower-income countries in Eastern Europe and Western Asia; and (iv) a group of Asian and Oceanian donors that select their partners mainly based on the geographical proximity criterion.

This article examines the possible role of Official Development Assistance (ODA), or foreign aid, in the development process of recipient countries, taking into consideration the contributions of a vast group of theoretical approaches. The arguments against and in favour of granting official aid, postulated by each of the theories, are presented, as well as the way aid should be primarily allocated to maximize its positive effects. This debate is particularly relevant in a context where recent shocks in the world economy have raised doubt about the feasibility of the pledge concerning the mobilisation of private flows for developing countries, highlighting once again the possible role of foreign aid and the importance of appraising its effects. The novelty of this article lies in establishing and systematizing in an integrated perspective, for the first time, the role of foreign aid within the different theoretical approaches to development.

This study revisits the debate surrounding the impact of Official Development Assistance (ODA), also known as foreign aid, on two macro-indicators: economic growth and child mortality. Unlike previous studies, which assessed the interaction of aid with composite indicators of recipient countries, this study examines the impacts of individual recipient factors, such as corruption, democracy, income, wars and exports. To overcome the issue of an inverse causal relationship potentially existing between the amount of aid received and macro-performance, a model of donor aid allocation is specified within an instrumental variables framework. The results show that ODA is more likely to be positively associated with economic growth in countries with lower levels of corruption. This positive association is evident when the level of corruption is at least one standard deviation lower than the recipient’s average. The interaction of ODA with recipients’ levels of democracy, income, wars or exports does not show a significant association with growth. The association between ODA and child mortality appears to be generally more significant, with a positive sign, than that obtained for economic growth, although the magnitude is relatively modest.