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The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?

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  • Michael A. Clemens

    ()

  • Steven Radelet

Abstract

The US government’s proposed $5 billion Millennium Challenge Account (MCA) could provide upwards of $250-$300m or more per year per country in new development assistance to a small number of poor countries judged to have relatively “good” policies and institutions. Could this assistance be too much of a good thing and strain the absorptive capacity of recipient countries to use the funds effectively? Empirical evidence from the past 40 years of development assistance suggests that in most potential MCA countries, the sheer quantity of MCA money is unlikely to overwhelm the ability of recipients to use it well, if the funds are delivered effectively. There may be a small number of potential recipients—mostly very small economies already receiving substantial amounts of aid—in which MCA money might be so bountiful as to surpass recipient governments’ absorptive capacity. Strong monitoring and evaluation is the key to detecting and correcting possible absorptive capacity problems, rather than ad-hoc rules limiting the amount of assistance. Where problems do arise, funds should be re-allocated to other activities within the country or to other MCA countries, or the list of countries qualifying for the MCA could be expanded slightly to include a small number of additional countries that may be able to use the funds effectively. We also explore the length of time that the USG should be prepared to continue to fund MCA countries, and how recipients might exit from MCA funding over time. We look back at two dozen ‘good policy’ countries that previously were very poor but have grown and developed after receiving large amounts of aid—one might call them the ideal MCA candidates of the 1970s. Their experience suggests that (1) unlike some other countries, they used aid well, and (2) these “best case scenarios” required stable and moderately sizeable aid commitments lasting decades. This experience suggests that even the best performing of the MCA countries are likely to require significant assistance for many years. The idea of a brief, big-bang “Marshall Plan” for developing countries in which the MCA provides a large amount of funding for a short period of time in hopes of igniting rapid development is probably wishful thinking.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 23.

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Length: 33 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:cgd:wpaper:23

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Web page: http://www.cgdev.org

Related research

Keywords: Millennium Challenge Account (MCA); development assistance; monitoring and evaluation; absorptive capacity;

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Cited by:
  1. Mark McGillivray, 2003. "Efficacité de l'aide et sélectivité : vers un concept élargi," Revue d’économie du développement, De Boeck Université, vol. 17(4), pages 43-62.
  2. Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," Departmental Working Papers 2007-02, The Australian National University, Arndt-Corden Department of Economics.
  3. Roodman, David, 2006. "Aid Project Proliferation and Absorptive Capacity," Working Paper Series RP2006/04, World Institute for Development Economic Research (UNU-WIDER).
  4. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Paper Series DP2006/02, World Institute for Development Economic Research (UNU-WIDER).
  5. McGillivray, Mark, 2006. "Aid Allocation and Fragile States," Working Paper Series DP2006/01, World Institute for Development Economic Research (UNU-WIDER).
  6. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank.
  7. McGillivray, Mark, 2003. "Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Knoll, Martin & Zloczysti, Petra, 2012. "The Good Governance Indicators of the Millennium Challenge Account: How Many Dimensions are Really Being Measured?," World Development, Elsevier, vol. 40(5), pages 900-915.
  9. Peter Nunnenkamp & Rainer Thiele, 2006. "Targeting Aid to the Needy and Deserving: Nothing But Promises?," The World Economy, Wiley Blackwell, vol. 29(9), pages 1177-1201, 09.
  10. Tony Addison & George Mavrotas & Mark McGillivray, 2010. "Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals," Working Papers id:2592, eSocialSciences.
  11. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals," Working Paper Series RP2005/09, World Institute for Development Economic Research (UNU-WIDER).
  12. Mark McGillivray, 2005. "Réformer la formule : commentaires.Efficacité de l'aide et régimes de politiques économiques dans les pays receveurs," Revue d’économie du développement, De Boeck Université, vol. 19(2), pages 119-127.
  13. Peter S. Heller, 2005. "Pity the Finance Minister," IMF Working Papers 05/180, International Monetary Fund.
  14. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Development Assistance and Development Finance: Evidence and Global Policy Agendas," Working Paper Series RP2005/23, World Institute for Development Economic Research (UNU-WIDER).
  15. George Mavrotas & Bazoumana Ouattara, 2007. "Aid Modalities and Budgetary Response: Panel Data Evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 720-741, December.
  16. Asmah, Emmanuel E. & Levin, Jorgen, 2008. "Aid-Financed Public Investments and the Dutch Disease: Evidence from Tanzania," Working Papers 2008:3, Örebro University, School of Business.
  17. Mark McGillivray, 2010. "Aid Allocation and Fragile States," Working Papers id:3062, eSocialSciences.
  18. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Development assistance and development finance: evidence and global policy agendas," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(6), pages 819-836.

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