Aid Effectiveness in Fragile States

Fragile states are highly dependent on foreign aid and are characterized by several features that impair their economic and social performance. After reviewing the literature on aid effectiveness, the chapter presents several stylized facts on aid flows to fragile states, and exploits detailed project-level data to provide novel evidence on aid effectiveness in fragile states. Comparing project success rate across fragile and other developing countries confirms that aid given to fragile states is less likely to be effective than elsewhere. Focusing on the conflict dimension of fragility, we can extend our analysis at the subnational level to strengthen the identification of the effect of fragility on project success. Our results indicate that a project implemented in a fragile state is up to 8 percentage points less likely to be successful than a similar project financed in another developing country. Our analysis does not imply that aid to fragile states should be reduced across the board, but points to several factors that could hamper the growth dividend of aid.