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Do donors get what they paid for? micro evidence on the fungibility of development project aid

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  • van de Walle, Dominique
  • Cratty, Dorothyjean

Abstract

Recipient government responses to development project aid have typically been studied at high levels of aggregation, using cross-country comparisons and/or aggregate time series data. Yet increasingly the relevant decisions are being made at the local level, in response to specific community-level projects. The authors use local-level data to test for fungibility of World Bank financing of rural road rehabilitation targeted to specific geographic areas of Vietnam. A simple double difference estimate suggests that the project's net contribution to rehabilitated road increments is close to zero, suggesting complete displacement of funding. However, with better controls for the endogeneity of project placement the authors find much less evidence of fungibility, with displacement accounting for around one-third of the aid. The results point to the importance ofdealing with selection bias in assessing project aid fungibility.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3542.

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Date of creation: 01 Mar 2005
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Handle: RePEc:wbk:wbrwps:3542

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Related research

Keywords: Housing&Human Habitats; Roads&Highways; ICT Policy and Strategies; Health Economics&Finance; Poverty Monitoring&Analysis;

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References

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  1. Zampelli, Ernest M, 1986. "Resource Fungibility, the Flypaper Effect, and the Expenditure Impact of Grants-in-Aid," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 33-40, February.
  2. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
  3. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, Econometric Society, vol. 66(5), pages 1017-1098, September.
  4. Jyotsna Jalan & Martin Ravallion, 2000. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity Score Matching," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0873, Econometric Society.
  5. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, World Bank Group, vol. 12(1), pages 29-58, January.
  6. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
  7. Khilji, Nasir M. & Zampelli, Ernest M., 1994. "The fungibility of U.S. military and non-military assistance and the impacts on expenditures of major aid recipients," Journal of Development Economics, Elsevier, Elsevier, vol. 43(2), pages 345-362, April.
  8. Grossman, Jean Baldwin, 1994. "Evaluating Social Policies: Principles and U.S. Experience," World Bank Research Observer, World Bank Group, World Bank Group, vol. 9(2), pages 159-80, July.
  9. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(399), pages 188-94, March.
  10. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  11. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
  12. Jalan, Jyotsna & Ravallion, Martin, 1998. "Are there dynamic gains from a poor-area development program?," Journal of Public Economics, Elsevier, Elsevier, vol. 67(1), pages 65-85, January.
  13. repec:fth:coluec:9899-01 is not listed on IDEAS
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Cited by:
  1. Charles Kenny, 2008. "What is effective aid? How would donors allocate it?," European Journal of Development Research, Taylor and Francis Journals, Taylor and Francis Journals, vol. 20(2), pages 330-346.
  2. Liutang Gong & Yuzhe Zhang & Heng-fu Zou, 2008. "Foreign Aid, Public Spending, Optimal Fiscal and Monetary Policies, and Long-Run Growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 309, China Economics and Management Academy, Central University of Finance and Economics.

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