Who Gets Foreign Aid?: The Impact Of Lobbying By Ethnic Groups In Multicultural Donor Countries

06 Mar 2000

The allocation of limited foreign aid resources to particular parts of the world is heavily
influenced by the activities of ethnic groups within the donor countries. According to new
research by Professor Sajal Lahiri and Dr Pascalis Raimondos-Moller, published in the March
2000 issue of the Economic Journal, ethnic groups often lobby the government for the benefit of
the countries of their origin. And they are usually very successful: for example, a large proportion
of aid from Germany goes to Turkey and a large proportion of aid from the United States to Israel.
The paper notes the rather curious fact that only 30% of total overseas development assistance
goes to the very poor developing countries in sub-Saharan Africa and South Asia. This contrasts
with a figure of 25% of foreign aid that goes to the relatively prosperous developing countries.
It is also true that the pattern of aid differs widely between donors. According to the World Bank,
the percentages of aid given to low income developing countries by major donors in 1991 were as
follows: United States: 14%; France: 18%; Germany: 20%; UK: 23%; Denmark: 29%; Norway:
30%; Japan: 42%.
The research explains this pattern in aid allocation in terms of domestic politics in the donor
countries. In particular, he looks at the role of the ethnic composition of the population of donor
countries in the determination of aid allocation.
The fact is that domestic politics in the donor countries do play a role. For example, in a
multicultural donor country, the importance of various ethnic groups cannot be underestimated.
These groups often lobby the government for the benefit of the countries of their origin. Such
lobby groups as the Jewish lobby, the Arab lobby, the Indian lobby and the Turkish lobby are well
known for their activities in major multicultural donor countries, such as the United States, the
UK, Germany and France.
To the extent that these lobbying activities have effects on the allocation of aid, one would expect
that the pattern of aid would be quite different between multicultural countries, such as the United
States and the UK, and relatively more homogeneous countries such as Japan, Denmark and
Sweden.
Indeed, the pattern of aid between the two groups of countries is strikingly different. Moreover,
the relationship between the pattern of aid and the ethnic composition is also striking. For
example, a large proportion of aid from Germany goes to Turkey. Similar observations can be
made for US aid to Israel.
In the authors'' theoretical analysis, lobbying takes place in a donor country, which allocates aid
among two recipient countries. He assumes that there are two ethnic groups in the donor country
corresponding to the two recipient countries; and there are natives. The natives are impartial about
the two recipient countries and do not lobby the government. However, each ethnic group cares
only about one recipient country and lobbies the government to give more aid to its country of
preference. The lobbyists make political contributions to the political party in power, and the
amount they contribute is contingent on the policy that the government adopts. The government
cares about the welfare of its nationals, but it also cares about its political funds.
The authors focus on three parameters in the donor country: the degree of corruption; the level of
aid fatigue; and the ethnic composition of the population. These three variables have important
effects on aid allocation. Past research has blamed aid fatigue for the low level of the total amount
of aid. This study suggests that higher aid fatigue in the donor countries may also affect the way a
limited amount of overseas development assistance funds are allocated between recipient
countries.

''Lobbying by Ethnic Groups and Aid Allocation'' by Professor Sajal Lahiri and Dr Pascalis Raimondos-Moller is published in the March 2000 issue of the Economic Journal. Lahiri is at the University of Essex; Raimondos-Moller is at the University of Sydney, Australia.

Sajal Lahiri

01206- 872733 | lahiri@essex.ac.uk