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.
|Date of creation:||18 Jan 2011|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00557176|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-1151, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Jacky Amprou & Patrick Guillaumont & Sylviane Guillaumont Jeanneney, 2007. "Aid Selectivity According to Augmented Criteria," The World Economy, Wiley Blackwell, vol. 30(5), pages 733-763, 05.
- Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Jacky AMPROU, 2005. "Aid Selectivity According to Augmented Criteria," Working Papers 200526, CERDI.
- 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, 2006. "Aid Selectivity According to Augmented Criteria," Working Papers 200616, CERDI.
- Guillaumont, Patrick & Jeanneney, Sylviane Guillaumont & Brun, Jean-Francois, 1999. "How Instability Lowers African Growth," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(1), pages 87-107, March.
- Jean-François BRUN & Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY, 1997. "How Instability Lowers African Growth ?," Working Papers 199712, CERDI.
- Jean-François BRUN & Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY, 1998. "How Instability Lowers African Growth," Working Papers 199806, CERDI.
- Pallage, Stephane & Robe, Michel A, 2001. "Foreign Aid and the Business Cycle," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 641-672, November.
- Stephane Pallage & Michel Robe, 1998. "Foreign Aid and the Business Cycle," Cahiers de recherche CREFE / CREFE Working Papers 63, CREFE, Université du Québec à Montréal.
- Michel A. Robe & Stephane Pallage, 2000. "Foreign Aid And The Business Cycle," Computing in Economics and Finance 2000 107, Society for Computational Economics.
- Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-4.
- Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 149-184.
- P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
- Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
- Kaufmann, Daniel & Wang, Yan, 1995. "Macroeconomic policies and project performance in the social sectors: A model of human capital production and evidence from LDCs," World Development, Elsevier, vol. 23(5), pages 751-765, May.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
- Rand, John & Tarp, Finn, 2002. "Business Cycles in Developing Countries: Are They Different?," World Development, Elsevier, vol. 30(12), pages 2071-2088, December.
- Rand, John & Tarp, Finn, 2001. "Business Cycles in Developing Countries: Are They Different?," MPRA Paper 62445, University Library of Munich, Germany.
- Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
- Hansen, Henrik & Tarp, Finn, 2000. "Aid and Growth Regressions," MPRA Paper 62288, University Library of Munich, Germany.
- Isham, Jonathan & Kaufmann, Daniel & Pritchett, Lant H, 1997. "Civil Liberties, Democracy, and the Performance of Government Projects," World Bank Economic Review, World Bank Group, vol. 11(2), pages 219-242, May.
- Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
- Agenor, Pierre-Richard, 2001. "Business cycles, economic crises, and the poor : testing for asymmetric effects," Policy Research Working Paper Series 2700, The World Bank. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00557176. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.