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What is effective aid? How would donors allocate It?

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  • Kenny, Charles

Abstract

There are significant weaknesses in some of the traditional justifications for assuming that aid will foster development. This paper looks at what the cross-country aid effectiveness literature and World Bank Operations Evaluation Department reviews have suggested about effective aid, first in terms of promoting income growth, and then for promoting other goals. This review forms the basis for a discussion of recommendations to improve aid effectiveness and a discussion of effective aid allocation. Given the multiple potential objectives for aid, there is no one right answer. However, it appears that there are a number of reforms to aid practices and distribution that might help to deliver a more significant return to aid resources. We should provide aid where institutions are already strong, where they can be strengthened with the help of donor resources, or where they can be bypassed with limited damage to existing institutional capacity. The importance of institutions to aid outcomes, as well as the fungibility of aid flows, suggests that programmatic aid should be expanded in countries with strong institutions, while project aid should be supported based on its ability to transfer knowledge and test new practices and support global public good provision rather than (merely) as a tool of financial resource transfer. The importance of institutions also suggests that we should be cautious in our expectations regarding the results of increased aid flows.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4005.

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Date of creation: 01 Sep 2006
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Handle: RePEc:wbk:wbrwps:4005

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Keywords: Development Economics&Aid Effectiveness; Banks&Banking Reform; School Health; Population Policies; Economic Theory&Research;

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References

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  1. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  2. Michael A. Clemens & Charles J. Kenny & Todd J. Moss, 2004. "The Trouble with the MDGs: Confronting Expectations of Aid and Development Success," Working Papers 40, Center for Global Development.
  3. van de Walle, Dominique & Cratty, Dorothyjean, 2005. "Do donors get what they paid for? micro evidence on the fungibility of development project aid," Policy Research Working Paper Series 3542, The World Bank.
  4. Alexander Pivovarsky & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Revenue Response: Does the Composition of Aid Matter?," IMF Working Papers 03/176, International Monetary Fund.
  5. Todd Moss, 2005. "Ten Myths of the International Finance Facility," Working Papers 60, Center for Global Development.
  6. Brautigam, Deborah A & Knack, Stephen, 2004. "Foreign Aid, Institutions, and Governance in Sub-Saharan Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 255-85, January.
  7. Wane, Waly, 2004. "The quality of foreign aid : country selectivity or donors incentives?," Policy Research Working Paper Series 3325, The World Bank.
  8. Knack, Stephen & Rahman, Aminur, 2004. "Donor fragmentation and bureaucratic quality in aid recipients," Policy Research Working Paper Series 3186, The World Bank.
  9. 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.
  10. Lucia Hanmer & Robert Lensink & Howard White, 2003. "Infant and child mortality in developing countries: Analysing the data for Robust determinants," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 101-118.
  11. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA.
  12. Gomanee, Karuna & Girma, Sourafel & Morrissey, Oliver, 2005. "Aid and Growth in Sub-Saharan Africa: Accounting for Transmission Mechanisms," Working Paper Series RP2005/60, World Institute for Development Economic Research (UNU-WIDER).
  13. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Accumulation. A Meta Study," Economics Working Papers 2005-12, School of Economics and Management, University of Aarhus.
  14. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  15. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.
  16. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
  17. Butkiewicz, James L. & Yanikkaya, Halit, 2005. "The Effects of IMF and World Bank Lending on Long-Run Economic Growth: An Empirical Analysis," World Development, Elsevier, vol. 33(3), pages 371-391, March.
  18. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank.
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Citations

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Cited by:
  1. Sumner, Andy, 2012. "Where Do The Poor Live?," World Development, Elsevier, vol. 40(5), pages 865-877.
  2. Bernard Walters, 2007. "The Fiscal Implications of Scaling up ODA to Deal with the HIV/AIDS Pandemic," Conference Paper 3, International Policy Centre for Inclusive Growth.
  3. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
  4. Tierney, Michael J. & Nielson, Daniel L. & Hawkins, Darren G. & Roberts, J. Timmons & Findley, Michael G. & Powers, Ryan M. & Parks, Bradley & Wilson, Sven E. & Hicks, Robert L., 2011. "More Dollars than Sense: Refining Our Knowledge of Development Finance Using AidData," World Development, Elsevier, vol. 39(11), pages 1891-1906.

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