Foreign Aid and Global Public Goods

After the September 11 disaster the U.S. rediscovered an old international policy to raise the provision of an international public good: foreign aid as a means to raise global security. However, foreign aid may also help to overcome other international problems. In this paper, we analyze the effect foreign aid on international climate policy. We take account of cost differentials among countries in producing the public good, ancillary benefits of climate policy and alternative technologies independently generating ancillary benefits. We elaborate incentives to provide foreign aid and highlight a new aspect influencing the effects of foreign aid on global public good provision: cost differentials among countries in independently generating ancillary effects of global public goods.