Tied Aid and Its Distortions
How requiring aid recipients to buy from donor countries reduces effectiveness and serves donor commercial interests.
What Is Tied Aid?
Tied aid requires recipients to purchase goods and services from the donor country as a condition of receiving the aid. If the US provides $10 million for a road-building project 'tied,' the recipient must hire American contractors and buy American materials, even if local or third-country suppliers are cheaper and better suited.
The practice has deep roots. For decades, most donor countries tied the majority of their aid, creating a subsidy for domestic exporters disguised as generosity. Studies by the OECD found that tying reduces aid value by 15-30% because recipients cannot seek competitive prices. A 2002 OECD agreement partially addressed the issue, with most donors untying aid to least-developed countries. But significant tying persists, especially in infrastructure and food aid.