Aid Allocation across Sectors: Does aid fit well with recipients' development priorities?

This paper investigates whether aid flows to developing countries fit well with their development priorities. In particular, we examine aid allocation across sectors in a given recipient country by using sectoral data on aid and indicators that measure the recipient's need for aid in each sector. The data show that inter-recipient aid allocation reflects the recipient's need. However, we found no evidence that inter-sectoral allocation fits with national priorities except in high- and middle-income East Asian countries. Our evidence shows that the quality of bureaucracy and corruption in recipient countries impede efficient inter-sectoral allocation.