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When do donors trust recipient country systems ?

  • Knack, Stephen

The 2005 Paris Declaration on Aid Effectiveness sets targets for increased use by donors of recipient country systems for managing aid. The target is premised on a view that country systems are strengthened when donors trust recipients to manage aid funds, but undermined when donors manage aid through their own separate parallel systems. This study provides an analytical framework for understanding donors'decisions to trust or bypass country systems. Empirical tests are conducted using data from three OECD-DAC surveys designed to monitor progress toward Paris Declaration goals. Tests show that a donor's use of the recipient country's systems is positively related to: (1) the donor's share of aid provided to the recipient (a proxy for the donor's reputational stake in the country's development); (2) perceptions of corruption in the recipient country (a proxy for the trustworthiness or quality of the country's systems); and (3) public support for aid in the donor country (a proxy for the donor's risk tolerance). Findings are robust to corrections for potential sample selection, omitted variables or endogeneity bias.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6019.

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Date of creation: 01 Apr 2012
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Handle: RePEc:wbk:wbrwps:6019
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  1. Cameron, A. Colin & Gelbach, Jonah B. & Miller, Douglas L., 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 238-249.
  2. Finn Tarp, 2006. "Aid and Development," Discussion Papers 06-12, University of Copenhagen. Department of Economics.
  3. Knack, Stephen & Rogers, F. Halsey & Eubank, Nicholas, 2010. "Aid quality and donor rankings," Policy Research Working Paper Series 5290, The World Bank.
  4. Luis Angeles & Kyriakos C Neanidis, 2006. "Aid Effectiveness: The Role of the Local Elite," Working Papers 2007_01, Business School - Economics, University of Glasgow, revised Dec 2006.
  5. Knack, Stephen & Eubank, Nicholas, 2009. "Aid and trust in country systems," Policy Research Working Paper Series 5005, The World Bank.
  6. William Easterly & Tobias Pfutze, 2008. "Where Does the Money Go? Best and Worst Practices in Foreign Aid," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 29-52, Spring.
  7. Knack, Stephen & Smets, Lodewijk, 2013. "Aid Tying and Donor Fragmentation," World Development, Elsevier, vol. 44(C), pages 63-76.
  8. Azam, Jean-Paul & Devarajan, Shantayanan & O'Connell, Stephen A., 1999. "Aid dependence reconsidered," Policy Research Working Paper Series 2144, The World Bank.
  9. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  10. Frot, Emmanuel & Perrotta, Maria, 2009. "Aid Eff ectiveness: New Instrument, New Results?," SITE Working Paper Series 11, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  11. Knack, Stephen & Rahman, Aminur, 2004. "Donor fragmentation and bureaucratic quality in aid recipients," Policy Research Working Paper Series 3186, The World Bank.
  12. repec:cup:cbooks:9780521808187 is not listed on IDEAS
  13. Bjørnskov, Christian, 2010. "Do elites benefit from democracy and foreign aid in developing countries?," Journal of Development Economics, Elsevier, vol. 92(2), pages 115-124, July.
  14. William Easterly, 2007. "Are aid agencies improving?," Economic Policy, CEPR;CES;MSH, vol. 22, pages 633-678, October.
  15. Anderson, Edward, 2012. "Aid fragmentation and donor transaction costs," Economics Letters, Elsevier, vol. 117(3), pages 799-802.
  16. Knack, Stephen, 2009. "Sovereign rents and quality of tax policy and administration," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 359-371, September.
  17. Collier, Paul, 2006. "Is Aid Oil? An Analysis Of Whether Africa Can Absorb More Aid," World Development, Elsevier, vol. 34(9), pages 1482-1497, September.
  18. Djankov, Simeon & Montalvo, Jose G. & Reynal-Querol, Marta, 2009. "Aid with multiple personalities," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 217-229, June.
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