Need, Merit and Politics in Multilateral Aid Allocation: A District-level Analysis of World Bank Projects in India

We assess the targeting of foreign aid within recipient countries by employing Poisson estimations on the determinants of the World Bank's allocation of project aid at the district level in India. The evidence of needs-based location choices is very weak as long as the poverty orientation of overall commitments is taken as the yardstick. It is only for some sectors that we find stronger indications of needs-based allocation when combining sector-specific commitments with corresponding measures of need. The evidence for a merit-based allocation of World Bank aid is even weaker. We typically do not find evidence that aid allocation is affected by political patronage at the state or district level. However, the World Bank prefers districts where foreign direct investors may benefit from projects related to infrastructure.