Among countries with similar poverty levels but different policy regimes, more finance should go to the countries with better management. The actual allocation of aid has often been influenced by the strategic interests of donors. Although donor behavior differs, total bilateral aid has favored former colonies and political allies more than open economies or democracies. As a result, much bilateral aid has gone to countries with poor management. Aggregating the flows from different donors obscures the different criteria on which aid is allocated.
Nordic aid is targeted to the poorest countries, favoring open economies and democracies.
Multilateral assistance has been more effectively targeted than bilateral assistance to countries with sound management, though there is still room for improvement. Overall, aid is more effective at promoting growth and reducing poverty when it is channeled to poor countries with sound management. There are two reasons to be optimistic that foreign aid can be allocated more efficiently in the future. First, the end of the Cold War reduces the pressure to provide aid to strategic allies. Second, there has been a worldwide trend toward economic reform in developing nations.