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Aid Project Proliferation and Absorptive Capacity

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  • David Roodman

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Abstract

Much public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the effectiveness of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs, the donor’s aid and a recipient-side resource, and two outputs, namely, development and “throughput,” which proxies for the private benefits for both donor and recipient of implementing projects, from kickbacks to career rewards for disbursing. The donor’s allocation of aid across projects is taken as exogenous while the recipient’s allocation of its resource is modeled and subject to a budget constraint. Unless the recipient cares purely about development, increasing aid can reduce development in some circumstances. Sunk costs, representing the administrative burden for the recipient of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipient’s resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. With Cobb-Douglas production, a threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projects—but the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 75.

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Length: 45 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:cgd:wpaper:75

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

Related research

Keywords: Foreign aid; donor coordination; project proliferation; absorptive capacity;

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References

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  1. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(496), pages F191-F216, 06.
  2. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
  3. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  4. Morss, Elliott R., 1984. "Institutional destruction resulting from donor and project proliferation in Sub-Saharan African countries," World Development, Elsevier, vol. 12(4), pages 465-470, April.
  5. Michael Clemens & Todd Moss, 2005. "Ghost of 0.7%: Origins and Relevance of the International Aid Target," Development and Comp Systems 0509006, EconWPA.
  6. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers, Center for Global Development 44, Center for Global Development.
  7. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers, Center for Global Development 23, Center for Global Development.
  8. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  9. Martin Mühleisen & Dhaneshwar Ghura & Roger Nord & Michael T. Hadjimichael & E. Murat Ucer, 1995. "Sub-Saharan Africa," IMF Occasional Papers 118, International Monetary Fund.
  10. David Roodman, 2004. "An Index of Donor Performance," Working Papers, Center for Global Development 42, Center for Global Development.
  11. Arnab Acharya & Ana Teresa Fuzzo de Lima & Mick Moore, 2006. "Proliferation and fragmentation: Transactions costs and the value of aid," Journal of Development Studies, Taylor & Francis Journals, vol. 42(1), pages 1-21.
  12. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
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Citations

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Cited by:
  1. Rahman, Aminur & Sawada, Yasuyuki, 2010. "Can donor coordination solve the aid proliferation problem ?," Policy Research Working Paper Series 5251, The World Bank.
  2. KIMURA Hidemi & SAWADA Yasuyuki & MORI Yuko, 2007. "Aid Proliferation and Economic Growth: A Cross-Country Analysis," Discussion papers 07044, Research Institute of Economy, Trade and Industry (RIETI).
  3. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
  4. Feeny, Simon & de Silva, Ashton, 2012. "Measuring absorptive capacity constraints to foreign aid," Economic Modelling, Elsevier, vol. 29(3), pages 725-733.
  5. Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2007-02, The Australian National University, Arndt-Corden Department of Economics.
  6. David Roodman, 2006. "Competitive Proliferation of Aid Projects: A Model," Working Papers, Center for Global Development 89, Center for Global Development.
  7. Hulya Dagdeviren & Simon A. Robertson, 2009. "Access to Water in the Slums of the Developing World," Working Papers 57, International Policy Centre for Inclusive Growth.

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