Lobbying by Ethnic Groups and Aid Allocation

We develop a political‐economic model of foreign aid allocation. Each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin, and the government accepts political contributions from lobby groups. Initial per‐capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium. We also examine the effects of changes in the degree of corruption, aid fatigue, and ethnic composition, in the donor country on the allocation of aid.