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When instability increases the effectiveness of aid projects

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  • Rachid LAAJAJ

    ()
    (Banque mondiale)

  • Patrick GUILLAUMONT

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

Abstract

This paper assesses the effect of economic instability on the success of the projects funded by the World Bank, using the outcome of the projects, which is a notation of their overall success determined by the Independent Evaluation Group. It has been argued in macro economic studies that aid effectiveness is higher in vulnerable countries, because it dampens the negative effects of shocks. We show that this finding is not inconsistent with the observation that the success of the projects is lower in an unstable environment. Indeed instability, in particular the instability of exports, harms aid projects as it harms the rest of the economy, while the success of projects decreases when the total amount of aid received increases, due to absorptive capacity limitations. However this decrease is slower when instability is higher, showing a positive effect of aid through its stabilizing impact. We find the same results keeping only the projects funded by non concessionary loans, which suggests that the cushioning effect of aid extends not only to aid funded projects but to whole sets of projects. Corroborating macro economic findings, our results lead to the same conclusion that more aid should be allocated to more vulnerable countries, in spite of the lower success of the projects in an unstable environment: project evaluations cannot include the macro-stabilizing effect of the aid delivered through projects.

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File URL: http://publi.cerdi.org/ed/2006/2006.37.pdf
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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200637.

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Length: 29
Date of creation: 2006
Date of revision:
Handle: RePEc:cdi:wpaper:859

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  1. Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2006. "Aid Selectivity According to Augmented Criteria," Working Papers 200616, CERDI.
  2. Agenor, Pierre-Richard, 2001. "Business cycles, economic crises, and the poor : testing for asymmetric effects," Policy Research Working Paper Series 2700, The World Bank.
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  1. ¿Importan los Líderes?
    by Guest blogger in Hacia el desarrollo efectivo on 2012-12-19 22:20:46
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Cited by:
  1. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers P05, FERDI.
  2. Laura Metzger & Isabel Günther, 2013. "Analyzing Effectiveness of Development Aid Projects: Evaluation Ratings or Project Indicators?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 154, Courant Research Centre PEG.
  3. Kangni KPODAR & Maëlan LE GOFF, 2012. "Do Remittances Reduce Aid Dependency?," Working Papers P34, FERDI.
  4. Patrick GUILLAUMONT & Laurent WAGNER, 2014. "Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries," Working Papers P96, FERDI.
  5. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers P05, FERDI.
  6. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2011. "Good countries or good projects ? macro and micro correlates of World Bank project performance," Policy Research Working Paper Series 5646, The World Bank.
  7. Patrick Guillaumont, 2011. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers halshs-00554285, HAL.
  8. Guillaumont, Patrick, 2008. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Working Paper Series RP2008/99, World Institute for Development Economic Research (UNU-WIDER).
  9. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Working Papers id:2625, eSocialSciences.
  10. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2013. "Good countries or good projects? Macro and micro correlates of World Bank project performance," Journal of Development Economics, Elsevier, vol. 105(C), pages 288-302.
  11. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers P06, FERDI.
  12. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers P06, FERDI.
  13. Limodio, Nicola, 2011. "The success of infrastructure projects in low-income countries and the role of selectivity," Policy Research Working Paper Series 5694, The World Bank.

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