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Increasing selectivity of foreign aid, 1984-2002

  • Dollar, David
  • Levin, Victoria

The authors examine the allocation of foreign aid by 41 donor agencies, bilateral and multilateral. Their policy selectivity index measures the extent to which a donor's assistance is targeted to countries with sound institutions and policies, controlling for per capita income and population. The poverty selectivity index analogously looks at how well a donor's assistance is targeted to poor countries, controlling for institutional and policy environment as measured by a World Bank index. The authors'main finding is that the same group of multilateral and bilateral aid agencies that are very policy focused are also very poverty focused. The donors that appear high up in both rankings are the World Bank's International Development Association, the International Monetary Fund's Enhanced Structural Adjustment Facility, Denmark, the United Kingdom, Norway, Ireland, and the Netherlands. As a robustness check the authors alternatively use institutional quality measures independent of the World Bank and find the same pattern of selectivity. They also find that policy selectivity is a new phenomenon: in the 1984-89 period, aid overall was allocated indiscriminately without any consideration to the quality of governance, whereas in the 1990s there was a clear relationship between aid and governance (institutions and policies). This increasing selectivity of aid is good news for aid effectiveness. The bad news is that the aid agencies that the authors survey vary greatly in size. Some donors that are largest in absolute size, such as France and the United States, are not particularly selective. Japan comes in high on the policy selectivity index but far down on the poverty selectivity index, reflecting its pattern of giving large amounts of aid in Asia to countries that are well governed but in many cases not poor.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3299.

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Date of creation: 01 May 2004
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Handle: RePEc:wbk:wbrwps:3299
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  1. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  2. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA.
  3. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  4. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  5. David Roodman, 2004. "An Index of Donor Performance," Working Papers 42, Center for Global Development.
  6. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  7. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  8. Jeff Dayton-Johnson & John Hoddinott, 2003. "Aid, policies and growth, redux," Department of Economics at Dalhousie University working papers archive redux2, Dalhousie, Department of Economics.
  9. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February.
  10. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
  11. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  12. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
  13. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
  14. Russett, Bruce, 1978. "The marginal utility of income transfers to the Third World," International Organization, Cambridge University Press, vol. 32(04), pages 913-928, September.
  15. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  16. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  17. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank.
  18. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  19. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  20. Anne Boschini & Anders Olofsg�rd, 2007. "Foreign aid: An instrument for fighting communism?," Journal of Development Studies, Taylor & Francis Journals, vol. 43(4), pages 622-648.
  21. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers 23, Center for Global Development.
  22. John Hudson & Paul Mosley, 2001. "Aid policies and growth: in search of the holy grail," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(7), pages 1023-1038.
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