Aid Allocation Volatility to Small Island States

Aid is an important resource for developing countries. Many small island states (including those in the Pacific) are highly reliant on aid to supplement meagre government resources and other foreign capital inflows. This paper investigates the conditional volatility of aid (for bilateral aid disaggregated into sector aid and programme aid, and multilateral aid) to small island states using an econometric framework. In addition, year-on-year changes in aid allocation are also considered for both changes in aid allocations from major donors to the Pacific as well as for changes in aid receipts in 16 Pacific island countries. The entire sample of countries under consideration includes 44 aid-receiving (small island) states from the regions of ...