Needs-Based Targeting or Favoritism? The Regional Allocation of Multilateral Aid within Recipient Countries

The regional allocation of aid within recipient countries has been largely ignored in the aid allocation literature. We use geocoded data on the location of aid projects financed by the World Bank and the African Development Bank within a sample of 27 recipient countries to assess the claim of donors that their aid targets needy population segments. We also assess whether political leaders in these countries direct aid funds to their home region, irrespective of regional needs. We do not find that the multilateral aid institutions take regional needs into account. Instead, favoritism appears to play an important role for location choices, in particular for physical infrastructure projects.