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Absorptive Capacity: More Than the Volume of Aid, its Modalities Matter

  • Sylviane GUILLAUMONT JEANNENEY

    ()

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

  • Patrick GUILLAUMONT

    ()

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

We examine whether absorptive capacity represents a valid reason to reject the proposal of a large aid increase in order to help poor countries to move out of the underdevelopment trap. We consider absorptive capacity, the set of limits to an effective use of aid inflows, under for main aspects: 1) disbursement constraints, which lead to under utilisation of credits; 2) macroeconomic troubles, including loss of competitiveness and macroeconomic volatility; 3) decrease of aid returns, actually slower in more vulnerable countries, 4) institutions weakening induced by aid dependency. We argue that these limits to absorptive capacity may be removed by an improvement of aid modalities, such as better balancing between productive and social activities financed by aid, using aid as insurance against exogenous shocks, giving priority in aid allocation to “least developed countries”, which are the most vulnerable, and finally substituting a performance-based conditionality to the traditional-policy based one.

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File URL: http://publi.cerdi.org/ed/2007/2007.02.pdf
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Paper provided by CERDI in its series Working Papers with number 200702.

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Length: 28
Date of creation: 2007
Date of revision:
Handle: RePEc:cdi:wpaper:886
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  1. Isham, Jonathan & Kaufmann,Daniel, 1995. "The forgotten rationale for policy reform : the productivity of investment projects," Policy Research Working Paper Series 1549, The World Bank.
  2. Agenor, Pierre-Richard & Bayraktar, Nihal & Pinto Moreira, Emmanuel & El Aynaoui, Karim, 2005. "Achieving the Millennium Development Goals in Sub-Saharan Africa : a macroeconomic monitoring framework," Policy Research Working Paper Series 3750, The World Bank.
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