Should donor countries spend aid money through bilateral or multilateral channels? What are the comparative merits of each aid channel and how should a bilateral donor begin to choose between them?

This paper aims to inform bilateral donors’ attempts to improve their resource allocation across these two channels and highlights the importance of thinking strategically about the choice. Based on an extensive literature review, it presents the potential gains and risks associated with both multilateral and bilateral channels. It also considers multi-bi aid and explores its possible merits as a ‘third way for foreign aid’.

Making an informed choice between bilateral and multilateral aid channels is good management practice and good for development.