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When instability increases the effectiveness of aid projects

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  • Guillaumont, Patrick
  • Laajaj, Rachid

Abstract

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

Suggested Citation

  • Guillaumont, Patrick & Laajaj, Rachid, 2006. "When instability increases the effectiveness of aid projects," Policy Research Working Paper Series 4034, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4034
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    References listed on IDEAS

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    1. 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, May.
    2. 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.
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    7. 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.
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    14. 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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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. ¿Importan los Líderes?
      by Guest blogger in Hacia el desarrollo efectivo on 2012-12-20 04:20:46

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    Cited by:

    1. repec:spr:revint:v:12:y:2017:i:3:d:10.1007_s11558-016-9256-x is not listed on IDEAS
    2. Laurent Wagner, 2007. "Thresholds in Aid Effectiveness," Post-Print hal-00177460, HAL.
    3. 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, pages 217-261.
    4. 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.
    5. Patrick GUILLAUMONT, 2009. "World Crisis and Protecting Low-Income Countries Against Exogenous Shocks," Working Papers P06, FERDI.
    6. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers P05, FERDI.
    7. Maelan Le Goff & Kangni R Kpodar, 2011. "Do Remittances Reduce Aid Dependency?," IMF Working Papers 11/246, International Monetary Fund.
    8. 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.
    9. 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, pages 288-302.
    10. 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.
    11. Geli,Patricia & Kraay,Aart C. & Nobakht,Hoveida, 2014. "Predicting World Bank project outcome ratings," Policy Research Working Paper Series 7001, The World Bank.
    12. 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.
    13. Patrick Guillaumont, 2009. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Oxford Development Studies, Taylor & Francis Journals, pages 193-228.
    14. 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.
    15. 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.
    16. Bulman,David Janoff & Kolkma,Walter & Kraay,Aart C., 2015. "Good countries or good projects ? comparing macro and micro correlates of World Bank and Asian Development Bank project performance," Policy Research Working Paper Series 7245, The World Bank.
    17. 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.
    18. Patrick GUILLAUMONT, 2007. "EVI and its Use. Design of an Economic Vulnerability Index and its Use for International Development Policy," Working Papers 200714, CERDI.

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    Keywords

    Development Economics&Aid Effectiveness; Banks&Banking Reform; School Health; Poverty Monitoring&Analysis; Economic Theory&Research;

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