Can donors prevent aid misallocations? Evidence from Chinese and World Bank aid

We estimate the extent to which international aid projects are subject to favoritism using differences in differences and RDD estimates based on presidential transition dates. We compare two different sources of aid, China and the World Bank, and two different types of favoritism based on the president’s region of birth or ethnic group. Consistent with the literature, we find that Chinese aid is massively targeted to the region of birth of new presidents. However, we also find evidence of a less visible and less intense form of favoritism in World Bank aid: it targets areas that are co-ethnic with a new president, without following major regional administrative boundaries. This is consistent with a better control of the World Bank aid. Moreover, the political economy of World Bank aid favoritism appears to be more complex: World Bank aid favoritism is more intense in dictatorships, when Chinese aid is more abundant, and in countries that have historically received more World Bank aid.