Abstract: Through an interesting dynamic, there is at present an interesting intersection of two literatures – that on conventional foreign aid and that on global externalities and public goods. Some of the key questions that emerge from this are (1) Could international public goods and cross-border spillovers provide a revived rationale for old-fashioned transfers intended to spur development in poor countries? (2) When faced with the choice of making transfers or contributing to an international public good, what should a donor country do – even if its objectives are governed by self-interest rather than solidarity? (3) What happens to the many issues (like conditionality and ownership) in old-fashioned solidarity-driven aid, so exhaustively and exhaustingly debated over the past 20 years or more, in this new world of international public goods?The objective of this chapter is to begin the discussion of these questions, which seem to have been neglected in the rush to embrace international public goods as a new rationale for maintaining international development cooperation and even traditional aid flows. We set out a simple model of interaction between two countries that share a common public good and pose the problem of the richer “donor” country deciding between making a transfer or contributing to a public good, while being concerned only about the impact of outcomes on its own well-being. We next analyze the problem with different specifications of the public good. We conclude by discussing the implications of this analysis and the areas for further research.

Keywords: cross-border spillovers, economic transfers, foreign aid, global externalities, global public goods, international development cooperation, public goods, solidarity,