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Increasing selectivity of foreign aid, 1984-2002

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Author Info
Dollar, David
Levin, Victoria

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Abstract

The authors examine the allocation of foreign aid by 41 donor agencies, bilateral and multilateral. Their policy selectivity index measures the extent to which a donor's assistance is targeted to countries with sound institutions and policies, controlling for per capita income and population. The poverty selectivity index analogously looks at how well a donor's assistance is targeted to poor countries, controlling for institutional and policy environment as measured by a World Bank index. The authors'main finding is that the same group of multilateral and bilateral aid agencies that are very policy focused are also very poverty focused. The donors that appear high up in both rankings are the World Bank's International Development Association, the International Monetary Fund's Enhanced Structural Adjustment Facility, Denmark, the United Kingdom, Norway, Ireland, and the Netherlands. As a robustness check the authors alternatively use institutional quality measures independent of the World Bank and find the same pattern of selectivity. They also find that policy selectivity is a new phenomenon: in the 1984-89 period, aid overall was allocated indiscriminately without any consideration to the quality of governance, whereas in the 1990s there was a clear relationship between aid and governance (institutions and policies). This increasing selectivity of aid is good news for aid effectiveness. The bad news is that the aid agencies that the authors survey vary greatly in size. Some donors that are largest in absolute size, such as France and the United States, are not particularly selective. Japan comes in high on the policy selectivity index but far down on the poverty selectivity index, reflecting its pattern of giving large amounts of aid in Asia to countries that are well governed but in many cases not poor.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3299.

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Date of creation: 01 May 2004
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Handle: RePEc:wbk:wbrwps:3299

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Keywords: Environmental Economics&Policies; Gender and Development; Decentralization; Health Economics&Finance; Development Economics&Aid Effectiveness; Achieving Shared Growth; Health Economics&Finance; Governance Indicators; Poverty Assessment; Development Economics&Aid Effectiveness;

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  1. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 17-41, August. [Downloadable!] (restricted)
  2. David Roodman, 2004. "An Index of Donor Performance," Working Papers 42, Center for Global Development. [Downloadable!]
    Other versions:
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 66-92, August. [Downloadable!] (restricted)
  5. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA. [Downloadable!]
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  6. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
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  7. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December. [Downloadable!] (restricted)
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  9. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  11. Russett, Bruce, 1978. "The marginal utility of income transfers to the Third World," International Organization, Cambridge University Press, vol. 32(04), pages 913-928, September. [Downloadable!]
  12. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers 23, Center for Global Development. [Downloadable!]
  13. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January. [Downloadable!] (restricted)
  14. John Hudson & Paul Mosley, 2001. "Aid policies and growth: in search of the holy grail," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(7), pages 1023-1038. [Downloadable!]
  15. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September. [Downloadable!] (restricted)
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  16. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
  17. Jeff Dayton-Johnson & John Hoddinott, 2003. "Aid, policies and growth, redux," Department of Economics at Dalhousie University working papers archive redux2, Dalhousie, Department of Economics. [Downloadable!]
  18. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March. [Downloadable!] (restricted)
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  19. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 42-65, August. [Downloadable!] (restricted)
  20. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank. [Downloadable!]
  21. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stijn Claessens & Danny Cassimon, 2007. "Empirical evidence on the new international aid architecture," WEF Working Papers 0026, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  2. Javed Younas & Subhayu Bandyopadhyay, 2009. "Do donors care about declining trade revenue from liberalization? an analysis of bilateral aid allocation," Review, Federal Reserve Bank of St. Louis, issue May, pages 141-154. [Downloadable!]
  3. McGillivray, Mark, 2006. "Aid Allocation and Fragile States," Working Papers DP2006/01, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Patrick Guillaumont, 2005. "Pourquoi donner de l'aide ? Commentaires autour de la notion de sélectivité," Revue d’économie du développement, De Boeck Université, vol. 19(2), pages 51-60. [Downloadable!]
  5. Hagen, Rune Jansen, 2004. "Foreign Aid and Domestic Politics Implications for Aid Selectivity," Working Papers 04-12, Cornell University, Center for Analytic Economics. [Downloadable!]
  6. Isopi, Alessia & Mavrotas, George, 2006. "Aid Allocation and Aid Effectiveness: An Empirical Analysis," Working Papers RP2006/07, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  7. Alessia Isopi & Fabrizio Mattesini, 2008. "Aid and Corruption: Do Donors Use Development Assistance to Provide the “Right” Incentives?," CEIS Research Paper 121, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
    Other versions:
  8. Mina Baliamoune-Lutz, 2007. "Institutions, Trade, and Social Cohesion in Fragile States," ICER Working Papers 24-2007, ICER - International Centre for Economic Research. [Downloadable!]
    Other versions:
  9. Torres, Magui Moreno & Anderson, Michael, 2004. "Fragile States: Defining Difficult Environments For Poverty Reduction," PRDE Working Papers 12822, Department for International Development (DFID) (UK). [Downloadable!]
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