Tradeoffs of foreign assistance for the weakest-link global public goods

Abstract

We analyze how foreign assistance affects the donor and recipient countries for the weakest-link global public goods, accounting for discontinuities and non-monotonicities originating from switches between structurally different equilibrium profiles. We show that voluntary foreign assistance improves provision of the public good and also welfare, but makes the donor country worse off for the medium level of income inequality.

Keywords

• Global public good
• Foreign assistance
• Complementarity
• Foreign aid