Proliferation and fragmentation: Transactions costs and the value of aid

Abstract The problem of the proliferation of the number of aid donors and aid channels continues to worsen. It is widely and plausibly believed that this significantly reduces the value of aid by increasing direct and indirect transactions costs. We contribute to the existing literature by: (a) categorising the apparent adverse effects of proliferation; (b) producing a reliable and fair indicator of the relative degree to which the main bilateral donors proliferate or concentrate their aid; (c) giving some explanation of why some donors proliferate more than others; (d) constructing a reliable measure of the extent to which recipients suffer from the problem of fragmentation in the sources of their aid; and (e) demonstrating that the worst proliferators among the aid donors are especially likely to be suppliers of aid to recipients suffering most from fragmentation. There are significant implications for aid policy.