Foreign Aid in the Sustainable Development Goals Era: Analysing Donor Aid Allocation Strategies Based on Recipient Countries' Strides Towards SDG Achievement

In 2015, the United Nations implemented the Sustainable Development Goals (SDGs) aimed at eradicating poverty, protecting the planet, and ensuring global peace and prosperity by 2030. Despite these ambitious targets, developing countries have lagged in progress primarily due to insufficient financial resources. Foreign aid, while not completely bridging the financial gap, plays a crucial role in supporting these countries. However, it became evident that foreign aid is not always sent to countries in greatest need of financial assistance but that other factors such as historical and economic ties are major determinants too. This thesis investigated whether donors adjusted their aid allocation strategy after the 2015-implementation. Specifically, it studied whether recipients who have yet to make substantial strides towards the SDGs and recipients who have shown significant progress received more aid. The study aimed to answer the question: To what extent do the Sustainable Development Goals influence aid allocation strategies by donor countries? Using quantitative panel data analysis and data from international organisations the question was answered. Two SDG-metrics were developed: the SDG need metric (reflecting the strides recipients have yet to make) and the SDG merit metric (reflecting the progress recipients made between years). Both metrics are based on the SDG index, which represents the percentage of SDG achievement. The study focused on the G7 countries, and all DAC donors collectively and specifically studied bilateral aid. From the results it became evident that while not all donors reacted to changes in SDG attainment in recipient countries, some did change their aid allocation accordingly. Canada and Germany are donor countries which tend to allocate more funds to countries with the greatest need in terms of the SDGs. Conversely, Japan and France tend to reward recipient countries that have made significant progress in terms of the SDGs instead of allocating aid to the neediest countries. For Italy, the United Kingdom, the United States, and France, other economic and historical factors had greater explanatory power than the SDG-metrics. In conclusion, the study reveals a discrepancy between donor countries on aid allocation strategies. While some donors consider the SDGs, others do not. Consequently, the approach to taking the SDGs into account when distributing aid differs, some prioritise need while others reward merit. Which approach is best to effectively achieve the SDGs is the important follow-up question which cannot be answered by this thesis. Both need and merit-based approaches have their merits, but the high proportion of aid still being distributed according to donor self-interest is undesirable for achieving the global development goals.