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When instability increases the effectiveness of aid projects

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  • Guillaumont, Patrick
  • Laajaj, Rachid

Abstract

The authors assess the effect of economic instability on the success of projects funded by the World Bank using the outcome of the projects, which is a notation of their overall success determined by the Bank's Independent Evaluation Group. It has been argued in macroeconomic studies that aid effectiveness is higher in vulnerable countries because it dampens the negative effects of shocks. The authors show that this finding is not inconsistent with the observation that the success of the projects is lower in an unstable environment. Instability, in particular the instability of exports, harms aid projects as it harms the rest of the economy, while the success of projects decreases when the total amount of aid received increases, due to absorptive capacity limitations. But this decrease is slower when instability is higher, showing a positive effect of aid through its stabilizing impact. The authors find the same results keeping only the projects funded by nonconcessionary loans, which suggests that the cushioning effect of aid extends not only to aid funded projects but to whole sets of projects. Corroborating macroeconomic findings, their results lead to the same conclusion that more aid should be allocated to more vulnerable countries, in spite of the lower success of the projects in an unstable environment: project evaluations cannot include the macrostabilizing effect of the aid delivered through projects.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4034.

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Date of creation: 01 Oct 2006
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Handle: RePEc:wbk:wbrwps:4034

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Keywords: Development Economics&Aid Effectiveness; Banks&Banking Reform; School Health; Poverty Monitoring&Analysis; Economic Theory&Research;

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References

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  1. Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2005. "Aid Selectivity According to Augmented Criteria," Working Papers 200526, CERDI.
  2. Agenor, Pierre-Richard, 2001. "Business cycles, economic crises, and the poor : testing for asymmetric effects," Policy Research Working Paper Series 2700, The World Bank.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. ¿Importan los Líderes?
    by Guest blogger in Hacia el desarrollo efectivo on 2012-12-19 22:20:46
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Cited by:
  1. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Working Papers id:2625, eSocialSciences.
  2. Kangni KPODAR & Maëlan LE GOFF, 2012. "Do Remittances Reduce Aid Dependency?," Working Papers, FERDI P34, FERDI.
  3. Limodio, Nicola, 2011. "The success of infrastructure projects in low-income countries and the role of selectivity," Policy Research Working Paper Series 5694, The World Bank.
  4. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers, FERDI P06, FERDI.
  5. Patrick Guillaumont, 2011. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers halshs-00554285, HAL.
  6. Patrick GUILLAUMONT & Laurent WAGNER, 2014. "Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries," Working Papers, FERDI P96, FERDI.
  7. Kraay, Aart & Kraay, Aart & Murrell, Peter, 2013. "Misunderestimating corruption," Policy Research Working Paper Series 6488, The World Bank.
  8. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers, FERDI P06, FERDI.
  9. Guillaumont, Patrick, 2008. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/99, World Institute for Development Economic Research (UNU-WIDER).
  10. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers, FERDI P05, FERDI.
  11. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers, FERDI P05, FERDI.
  12. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2013. "Good countries or good projects? Macro and micro correlates of World Bank project performance," Journal of Development Economics, Elsevier, Elsevier, vol. 105(C), pages 288-302.
  13. Laura Metzger & Isabel Günther, 2013. "Analyzing Effectiveness of Development Aid Projects: Evaluation Ratings or Project Indicators?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 154, Courant Research Centre PEG.

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