Developed countries have pledged to increase financial assistance to poor countries in order to help them achieve the Millennium Development Goals. A few donors such as the US and the UK have been increasing their financial assistance in the recent past, but this trend has yet to be generalised across the donor community.
Japan is among the largest aid donors, but has as yet not followed the US and the UK in increasing her aid budget. This paper sets the task of examining the prospects of Japanese aid to increase significantly in the coming years, and its allocation to be re-directed towards the most aid needy countries. To this end, we turn to the past to investigate how Japanese aid policies have changed over time and also identify empirically the major determinants of aid allocation.
Our study shows that whilst Japan’s aid has increased in the past, in response to the broadening of its aid policy to include humanitarian and development objectives, the empirical analysis on aid allocation shows that geo-economic interests have played a crucial role. Given the historical trend one can conclude that the same determinant factors may keep on playing vital roles in aid allocation decision-making at least for some years to come, even though there has been an increased call for more assistance to poor regions.