Determinants of foreign aid: The case of South Korea

Abstract

South Korea, the newest member to join the OECD's Development Assistance Committee, has signaled that it will become a major donor of official development assistance (ODA). Having had its own history of being a large recipient of ODA, South Korea claimed that it will provide aid from the recipient's perspective. Using panel data covering twenty-three years (1987-2009) and 154 recipient countries, we examine whether South Korea's ODA reflects the recipient nation's humanitarian needs more than the donor's interests. We ask three questions: (1) - What are the major determinants of South Korea's ODA allocation? (2) - Has South Korea's ODA policies changed over different time horizons-that is, years, political regimes? (3) Does South Korea exhibit different standards of allocating ODA for different groups of recipient countries? We find that South Korea provides more aid to higher-income developing countries with higher growth rates, which shows the tendency to serve the donor's economic interests. When we examine the data by time periods, we do not find significant differences over decades or political regimes. However, when we reexamine the data based on recipients' income levels, we find that the relationship between per capita income of the recipient country and ODA allocation is negative only for the middle-income or lower-middle-income group recipients and positive for the rest. This finding suggests the possibility that South Korea's ODA policy may have a dual-track structure.