The Problems of Untying Aid
The tying of aid is a form of protectionism; however, the literature on this particular subject is rather scanty. One of the major problems in the untying of aid is the prisoner's dilemma. Those donors that want to abolish the practice will see their own interests damaged if the other donors do not follow.
In 2001, the donor members of the Development Assistance Committee (DAC), a subcommittee of the OECD, agreed to virtually untie all aid to the Least Developed Countries. That Recommendation entered into effect on January 1, 2002. In addition, Australia, Finland, France, Germany, Ireland, Japan, the Netherlands, Norway, Portugal, Sweden, Switzerland and the United Kingdom have untied their aid beyond the requirements of the Recommendation.
Further progress on this particular issue is being implemented as part of the Paris Declaration on Aid Effectiveness. However, of the 12 indicators included, the untying of bilateral aid is the only item without a deadline for its competition.
Read more about this topic: Tied Aid
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