When instability increases the effectiveness of aid projects
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.
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- Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2006.
"Aid Selectivity According to Augmented Criteria,"
- Patrick Guillaumont & Sylviane Guillaumont Jeanneney & Jacky Amprou, 2011. "Aid Selectivity According to Augmented Criteria," Working Papers halshs-00562658, HAL.
- Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT & Jacky AMPROU, 2005. "Aid Selectivity According to Augmented Criteria," Working Papers 200526, CERDI.
- 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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