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Multilateral Aid and Domestic Economic Interests

Abstract Existing studies of foreign aid suggest that donor countries' economic groups, such as exporters, should be generally opposed to multilateral aid because multilateral flows do not allow donor countries to tie their aid implicitly or explicitly to the promotion of their domestic economic interests. However, economic groups can actually benefit from some types of multilateral aid, and this serves as an incentive for donor governments to support international organizations generating the benefits. I test my argument using data on aid allocated to the Multilateral Fund for the Implementation of the Montreal Protocol and the Global Environment Facility, and international trade by commodity. I find robust empirical support for the argument that when donors' domestic economic groups are likely to gain from opportunities created by international environmental organizations' programs, donor governments increase aid allocations to these organizations.