Financial Dependence and Aid Allocation by Swiss NGOs: A Panel Tobit Analysis

Aid by nongovernmental organizations (NGOs) is still widely believed to be superior to official development assistance (ODA). However, the incentives of NGOs to excel and target aid to the poor and deserving are increasingly disputed. We contribute to the emerging literature on the allocation of NGO aid by performing panel Tobit estimations for Swiss NGOs. We cover the allocation of both self-financed and officially cofinanced aid for a large panel of NGOs and recipient countries. Furthermore, we offer new insights by classifying each NGO according to its financing structure and by interacting financial dependence with measures of need and merit of recipients as well as aid from other donors. It turns out that the allocation of NGO aid is much in line with that of ODA. This applies particularly to officially refinanced NGOs. Moreover, NGOs tend to locate where their peers are active. However, the poverty orientation of NGOs and their incentives to engage in difficult environments are independent of the degree of official refinancing. The allocation of self-financed aid differs in several important respects from the allocation of officially cofinanced aid. © 2012 by The University of Chicago.