Regional changes in the distribution of foreign aid: An entropy approach

• An entropy index is used to assess the dispersion of international foreign aid.
• Foreign aid has grown increasingly divergent reflecting a growing inequality.
• Aid distribution is highly regional among recipients reflecting disparities.
• Results inform policy and prescriptive judgments on the aid allocation efficacy.

Foreign aid contributes significantly to the income levels and economic viability of many developing countries. This paper investigates the dispersion in the distribution of foreign aid using the Theil entropy measure of inequality. Results show that the inequality (dispersion) of foreign aid has increased substantially in recent years. The increased inequality in the total distribution of aid has been due to both increases in the regional inequality of aid and increases in the average inequality of aid within each region. As a result, the distribution of aid is becoming less alike between regions and between countries within regions.