This World Bank research program tackles the aid effectiveness agenda using several different approaches, because no single approach is sufficient or even best.
|Research Program |
Since Assessing Aid—What Works, What Doesn't, and Why was published 10 years ago, donors have substantially increased in aid under the Monterrey Consensus, with many promising to increase aid to 0.7 percent of their GNP. As they begin to deliver on these commitments, questions about aid effectiveness continue to mount. Because no single approach to assessing aid effectiveness is sufficient or even best, this research program tackles the aid effectiveness agenda using several different approaches.
|Does aid effectiveness depend on recipient countries’ policies and institutions?|
That aid is likely to work better in a good policy environment continues is common sense, and indeed is supported by case studies of aid delivery. However, some of the more high-profile evidence, based on cross-country data, is in dispute. The important issue of the role of policies and institutions in aid effectiveness will be revisited by examining outcomes other than economic growth, testing the quality of aid rather than just quantity, and shifting from country-level to state- or even project-level data.
|Does aid facilitate policy reform?|
If aid can be used to induce policy and institutional reform, it can have sizable effects on growth, poverty reduction, and human development. Empirical evidence suggests that aid can support governments committed to reforms, but cannot induce uncommitted governments to adopt reforms. In addition, development assistance consists of resources and ideas, but while studies of development effectiveness usually focus on the first channel, there are reasons to believe that the diffusion of development ideas has had a larger impact. To the extent that external pressures affect policymaking in developing countries, it is important to determine what factors drive policy choice. Why is it that some countries adopt new development ideas while others do not? Under what conditions does learning from the international development community produce better policies? Research concerning these questions can utilize a variety of methods, ranging from case studies of policy choice to correlations between policymaker characteristics and indices of policy adoption.
|How does aid affect the allocation of government spending?|
A much larger share of aid is devoted to social sectors and less to "productive" sectors compared to 15 years ago. The perceived need in Africa for improved infrastructure to attract private investment is stimulating renewed debate on the appropriate allocation of aid across sectors. Moreover, with respect to spending across subsectors within sectors such as health and education, donors, at least nominally, have stressed primary education and primary health care. There has also been much discussion, but apparently no systematic evidence, on the extent to which donors’ emphasis on HIV/AIDS has come at the expense of other health subsectors. These concerns argue for a re-examination of aid’s effects on the composition of public spending. For example, previous work can be extended to test whether cross-sectoral fungibility of aid is affected by the ratio of project aid to program aid, or by citizen voice in budget priorities, as proxied by democracy indicators.
Books, Chapters, and Reports
Devarajan, Shantayanan, David R. Dollar, and Torgny Holmgren . 2001. Aid and Reform in Africa
. Washington, D.C.: World Bank. Download
Dollar, David R., and Lant Pritchett . 1998. Assessing Aid: What works, what doesn’t , and why
. Policy Research Report. Washington, D.C.: World Bank. Report
Goldin, Ian; Halsey Rogers
and Nicholas Stern. 2002. The Case for Aid: Building a Consensus for Development Assistance
. Washington, D.C.: World Bank. Report
, and Aminur Rahman. 2008. “Donor Fragmentation.” In Reinventing Foreign Aid
, ed. W. Easterly.Cambridge, Mass: MIT Press. Order
Kraay, Aart C. 2006."Aid, Growth, and Poverty.” In Peter Isard, Leslie Lipschitz, Alexandros Mourmouras, Boriana Yontcheva, eds .,The Macroeconomic Management of Foreign Aid. Washington, D.C.: International Monetary Fund.
Reinikka, Ritva . 2008. "Donors and Service Delivery." In Reinventing Foreign Aid
, ed. W. Easterly.Cambridge, Mass: MIT Press. Order
Swaroop, Vinaya, and Shantayanan Devarajan. 2000. "The implications of foreign aid fungibility for development assistance.” In Christopher Gilbert and David Vines, eds .,The World Bank: Structure and Policies. New York: Cambridge University Press.
Alesina, Alberto, and David Dollar. 2000. “Who Gives Foreign Aid to Whom and Why?” Journal of Economic Growth 5(1): 33-63.
Bourguignon, Francois, and Mark Sundberg. 2007. "Aid Effectiveness: Opening the Black Box." American Economic Review Papers and Proceedings 97(2), May, pp. 316-20.
Burnside, Craig, and David Dollar. 2000. ”Aid, Policies, and Growth.” American Economic Review 90(4): 847-68.
Collier, Paul. 1999."Aid 'Dependency': A Critique.” Journal of African Economies 8(4): 528-545.
Collier, Paul, and David Dollar. 2002. "Aid Allocation and Poverty Reduction.” European Economic Review 46: 1475-1500.
, and Laurie Effron . 2008. "World Bank Lending and Financial Sector Development." World Bank Economic Review
, Lyn Squire, and Swati Basu . 1998.”Does Economic Analysis Improve the Quality of Foreign Assistance?” World Bank Economic Review
12 (3): 385-418. (Full text
Dollar, David R., and William Easterly. 1999. "The Search for the Key: Aid, Investment and Policies in Africa.” Journal of African Economies 8(4): 456-77.
Dollar, David, and Jakob Svensson . 2000.”What Explains the Success or Failure of Structural Adjustment Programs.” Economic Journal 110(466): 894-917.
Easterly, William, Ross Levine, and David Roodman. 2004. “Aid, Policies, and Growth: Comment.” American Economic Review 94(3): 774-80.
Elbadawi, Ibrahim Ahmed. 1999. "External Aid: Help or Hindrance to Export Orientation in Africa.” Journal of African Economies 8 (4):578-616.
Feyzioglu, Tarhan, Vinaya Swaroop, and Min Zhu. 1998. "A panel data analysis of the fungibility of foreign aid." World Bank Economic Review
12(1): 29-58. (Full text
Heckelman, Jac , and Stephen Knack. 2008. “Foreign Aid and Market-Liberalizing Policy Reform.” Economica 75(August): 524-48.
Knack, Stephen. 2004. "Does Foreign Aid Promote Democracy?” International Studies Quarterly 48(1): 251-266.
Knack, Stephen. 2001. "Aid Dependence and the Quality of Government: Cross-Country Empirical Tests.” Southern Economic Journal 68(2): 310-29.
Knack, Stephen, and Aminur Rahman. 2007. “Donor Fragmentation and Bureaucratic Quality in Aid Recipients.” Journal of Development Economics 83(1, May): 176-97.
Knack, Stephen, and Deborah Brautigam . 2004. "Foreign Aid, Institutions and Governance in Sub-Saharan Africa.” Economic Development and Cultural Change 52(2): 255-86.
Pritchett, Lant, and Michael Woolcock.” 2004. Solutions When the Solution Is the Problem: Arraying the Disarray in Development." World Development 32 (2 (February): 191-212.
Svensson, Jakob . 2000. "Foreign Aid and Rent-seeking." Journal of International Economics 51(2): 437-61.
Svensson, Jakob . 1999. "Aid, Growth and Democracy.” Economics & Politics 11(3): 275-97.
Svensson, Jakob . 2000. "When is foreign aid policy credible? Aid dependence and conditionality.” Journal of Development Economics 61(4): 61-84.
Svensson, Jakob . 2003. "Why conditional aid does not work and what can be done about it?” Journal of Development Economics 70(2): 381-402.
Swaroop, Vinaya, Shikha Jha, and Andrew Sunil Rajkumar . 2000. "Fiscal effects of foreign aid in a federal system of governance: The case of India.” Journal of Public Economics 77(3): 307-30.
Zou, Heng-Fu, and Liutang Gong. 2001. "Foreign Aid Reduces Labor Supply and Capital Accumulation." Review of Development Economics 5(1): 105-18.
Zou, Heng-Fu, and Liutang Gong. 2001. "Foreign aid reduces domestic capital accumulation and increases foreign borrowing.” Review of Development Economics 5(1): 105-18.
Policy Research Working Papers on Aid Effectiveness
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The following policy research working papers are drawn from the World Bank's institutional archives. Each link opens a page with an abstract of the document and several download options.