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When instability increases the effectiveness of aid projects

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  • Rachid LAAJAJ

    ()

  • Patrick GUILLAUMONT

    () (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

This paper assesses the effect of economic instability on the success of the projects funded by the World Bank, using the outcome of the projects, which is a notation of their overall success determined by the Independent Evaluation Group. It has been argued in macro economic studies that aid effectiveness is higher in vulnerable countries, because it dampens the negative effects of shocks. We show that this finding is not inconsistent with the observation that the success of the projects is lower in an unstable environment. Indeed 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. However this decrease is slower when instability is higher, showing a positive effect of aid through its stabilizing impact. We find the same results keeping only the projects funded by non concessionary loans, which suggests that the cushioning effect of aid extends not only to aid funded projects but to whole sets of projects. Corroborating macro economic findings, our 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 macro-stabilizing effect of the aid delivered through projects.

Suggested Citation

  • Rachid LAAJAJ & Patrick GUILLAUMONT, 2006. "When instability increases the effectiveness of aid projects," Working Papers 200637, CERDI.
  • Handle: RePEc:cdi:wpaper:859
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    References listed on IDEAS

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    Cited by:

    1. Matthew J. Kotchen & Neeraj Kumar Negi, 2015. "Cofinancing in Environment and Development: Evidence from the Global Environment Facility," NBER Working Papers 21139, National Bureau of Economic Research, Inc.
    2. Presbitero, Andrea F., 2016. "Too much and too fast? Public investment scaling-up and absorptive capacity," Journal of Development Economics, Elsevier, vol. 120(C), pages 17-31.
    3. Laurent Wagner, 2007. "Thresholds in Aid Effectiveness," Post-Print hal-00177460, HAL.
    4. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers 200917, CERDI.
    5. Patrick Guillaumont, 2009. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Oxford Development Studies, Taylor & Francis Journals, vol. 37(3), pages 193-228.
    6. 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.
    7. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers P06, FERDI.
    8. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 828-854.
    9. Patrick Guillaumont & Laurent Wagner, 2014. "Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries," Revue d’économie du développement, De Boeck Université, vol. 22(HS01), pages 217-261.
    10. Maelan Le Goff & Kangni R Kpodar, 2011. "Do Remittances Reduce Aid Dependency?," IMF Working Papers 11/246, International Monetary Fund.
    11. 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, vol. 105(C), pages 288-302.
    12. Patrick GUILLAUMONT, 2007. "EVI and its Use. Design of an Economic Vulnerability Index and its Use for International Development Policy," Working Papers 200714, CERDI.
    13. Martorano, Bruno & Metzger, Laura & Sanfilippo, Marco, 2018. "Chinese development assistance and household welfare in sub-Saharan Africa," MERIT Working Papers 012, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    14. Christopher Kilby & Katharina Michaelowa, 2016. "What Influences World Bank Project Evaluations?," Villanova School of Business Department of Economics and Statistics Working Paper Series 26, Villanova School of Business Department of Economics and Statistics.
    15. repec:spr:revint:v:12:y:2017:i:3:d:10.1007_s11558-016-9256-x is not listed on IDEAS
    16. 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.
    17. Laurent Wagner, 2014. "Identifying thresholds in aid effectiveness," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 619-638, August.
    18. David Bulman & Walter Kolkma & Aart Kraay, 2017. "Good countries or good projects? Comparing macro and micro correlates of World Bank and Asian Development Bank project performance," The Review of International Organizations, Springer, vol. 12(3), pages 335-363, September.
    19. Aart Kraay & Peter Murrell, 2016. "Misunderestimating Corruption," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 455-466, July.
    20. Geli,Patricia & Kraay,Aart C. & Nobakht,Hoveida, 2014. "Predicting World Bank project outcome ratings," Policy Research Working Paper Series 7001, The World Bank.

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