1 Do Aid Donors Allocate Their Aid According to the Needs of Aid Recipient? An Empirical Analysis Fumitaka Furuoka Qaiser Munir School of Business and Economics Universiti Malaysia Sabah Locked Bag 2073 88999 Kota Kinabalu Sabah, Malaysia Tel 60-88-320000, Fax 60-88-320360 e-mail: fumitakamy@gmail.com qaiser@ums.edu.my Abstract Developed countries have been allocating vast amounts of funds as foreign aid to developing nations. For example, in 2006, the 22 member countries of the Development Assistance Committee (DAC) disbursed US$103.9 billion as foreign aid. However, foreign aid policy has been attracting a lot of criticism. One prominent example is that foreign aid allocations have not been determined by the needs of the recipient countries. This paper addresses this issue and examines determinants of Official Development Assistance (ODA) allocations including both bilateral and multilateral foreign aid over the period 2000-2005. The empirical findings reveal a complex nature of foreign aid allocations. The aid donors did tend to provide larger amounts of foreign aid to the poorer developing nations. At the same time, the empirical evidence indicates a distortion in the direction of the aid flows where the developing countries with smaller populations were given more foreign aid. Key words Foreign Aid, Aid Allocation, Motivation