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| Aid Effectiveness and Impact |
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| This paper argues that previous research on aid effectiveness is flawed because it typically examines the impact of aggregate aid on growth over a short period, which is unlikely to have an affect on growth. The authors divide aid into three categories: emergency and humanitarian aid, aid that affects growth only over a long period of time, and aid that could stimulate growth in four years (including budget and balance of payments support, investments in infrastructure, and aid for productive sectors such as agriculture and industry). They primarily focus on the third category which comprises about 53% of all aid flows and they find a positive, causal relationship between this “short-impact” aid and economic growth over a four-year period. These finding appears to hold true regardless of a recipient’s level of income or quality of institutions and policies. (PDF, 1.01 MB)
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| The authors in this paper state that the impact of aid depends on the quality of state institutions and policies. They also argue that when these institutions are strongest, the correlation between aid and growth is most robust and that corrupt institutions and weak policies limit the impact of financial assistance for development. This argument is based on empirical data from the 1990s. (PDF, 331 KB). |
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| The authors use a database of foreign aid to examine the relationship between foreign aid, economic policies, and growth per-capita GDP. In panel growth regressions for 56 developing countries and six four-year periods (1970-93), they find that the policies that have a great effect on growth are those related to fiscal surplus, inflation and trade openness. This paper is the most famous in the literature, with its conclusion "aid works in a good policy environment" accepted by many policymakers but still controversial among academics. (PDF, 110KB) |
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| Commenting on Burnside and Dollar’s influential cross-country analysis, "Aid, Policies and Growth," the authors extend the original data set from 1970–93 to 1970–97, and fill in missing data for the original period 1970–93. The authors find that the original conclusions are not robust when including the additional data. (PDF, 1.16MB)
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| This IMF working paper examines the impact of aid on growth. In contrast with earlier assessments that claim aid is beneficial for growth, the authors find no robust evidence linking the two. Additionally, the authors challenge the Burnside and Dollar claim, widely embraced by the World Bank and other aid agencies in recent years, that aid works best in good policy environments. The authors draw attention to the need to reconfigure current aid modalities in order for aid to be an effective tool for poverty alleviation. (PDF, 618KB) |
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| This paper explores whether conditional budget support or project aid is more effective. The authors show that budget support is more effective than project aid when donors and recipients' preferences are aligned, and when aid comprises a small percentage of the recipients' total resources. The assertion is tested and confirmed using a modified growth model for several developing countries. (PDF, 1.05 MB) |
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| In this paper, the author analyzes the effectiveness of foreign aid to gain insight into the political regimes of aid recipient countries. Boone finds that aid does not benefit the poor or increase investment, but does increase the size of government. This paper launched the most recent generation of aid-effectiveness work. (PDF, 2.18 MB) |
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| The Commitment to Development Index of the Center for Global Development annually rates 21 donor countries on "development-friendliness" using both quantitative and qualitative measures of official aid. This paper discusses factors such as tied aid, appropriately directed aid (project aid to poorly governed countries, and budget aid to well-governed ones) and poverty targeting. Country rankings based on the 2004 methodology have been relatively stable since 1995. (PDF, 491 KB) |
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| The authors examine the allocation of foreign aid by 41 bilateral and multilateral donors, compiling two indices of “policy selectivity” and "poverty selectivity" – the degree to which aid is aimed at countries with good policies, and to countries that are poor, respectively. They find that multilateral and bilateral aid agencies that are policy focused are usually also poverty focused. The data shows that, from 1984 to 1989, aid was generally allocated indiscriminately with respect to institutions and policies. However, ten years later, a more direct relationship has developed. (PDF, 333 KB) |
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| The authors in this paper study the pattern of allocation of foreign aid from donors to receiving countries. The authors find considerable evidence that the direction of foreign aid is dictated more by political and strategic considerations than by the economic needs and policy performance of the recipients. They also describe some of the behavioral differences among donors, and differences between foreign aid and foreign direct investment. (PDF, 3.61 MB) |
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| The Poverty Action Lab at the Massachusetts Institute of Technology (MIT) argues that randomized trials, commonplace in the pharmaceutical industry, should be more widely used in development and other social projects to learn which policies work best. This page contains links to research on the use of randomized trials in areas such as the determination of development effectiveness. |
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| Competition, Harmonization and Fragmentation |
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| This paper addresses the impact of donor fragmentation on the quality of government bureaucracy in aid-receiving countries. The authors find that the number of administrators hired to manage donor-funded projects declines as the donor’s share of other projects in the country increases, and as the donor’s concern for the success of other donors’ projects increases. The authors argue that greater donor competition would lead to lower bureaucratic quality among recipient countries. (PDF, 281 KB)
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| This report concludes that it is imperative to significantly and swiftly scale up action if the Millennium Development Goals (MDGs) are to be achieved. It outlines specific priorities for developed and developing countries and international financial institutions, and offers ways to strengthen monitoring exercises. Chapter 11 is a discussion of aid effectiveness, and includes several pages on harmonization and fragmentation. This report is meant to be a framework for accountability in global development policy. (PDF, 3.12 MB) |
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| This paper assesses the importance of incentive systems to aid agencies in their efforts to meet the commitments made in the Rome Declaration on Harmonization. It specifically looks at individual and collective behavior in aid agencies, and addresses whether these work for or against the adoption of harmonized practices and cooperation based on donor coordination and country ownership. The author concludes that despite high-level policy initiatives aimed at harmonization, lower-level staffers do not have the incentives to cooperate. The findings are based on case studies of six members of the Development Assistance Committee Task Force on Harmonization and Alignment. (PDF, 251 KB) |
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| In his critical review of the aid industry, the author famously coined the word "cartel" in reference to the official aid industry. He asserts that foreign aid was never really tried because well-meaning national and international bureaucrats dispensed aid to achieve foreign policy goals or preserve large national and international institutions, therefore creating an inefficient "cartel." This paper also includes a proposal for "aid vouchers" designed to give choice to aid recipients. (PDF, 235 KB)
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| The authors in this paper survey various forces working for and against change in the aid industry, such as: multiple foreign-policy objectives; soft budget constraints; an unwillingness or inability of many recipients to use aid in its current form; and cozy relationships with the private and voluntary sectors. With these forces in mind, the authors summarize the main elements of the 2003 “consensus” model of aid effectiveness, such as the Millennium Development Goals (MDGs) and the Poverty Reduction Strategy process. The authors also sketch out four possible future aid scenarios. (PDF, 330 KB) |
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| This short opinion piece was originally published in The Guardian and draws heavily from Rogerson's paper, The International Aid System 2005-2010: Forces For and Against Change. This piece addresses the future of foreign aid and specifically discusses the World Bank president, the accountability of the International Development Agency (IDA), funding of the International Financing Facility (IFF), and the "market structure" of foreign aid.
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| This publication contains several papers by authors such as former World Bank Chief Economist Nicholas Stern and Nobel Laureate Joseph Stiglitz on the future of the international finance institutions. It includes the paper "One Hundred Years After Bretton Woods: A Future History of the World Bank" by Michael Klein, chief economist of the International Finance Corporation. (PDF, 1MB) |
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| Outsights, a scenario consultancy, worked with the Department for International Development (DFID) to produce these four scenarios, which each emphasize a different force and its affect on the poorest people on the planet: the rise of Brazil, India, Russia and China; technological change; migration; and increased generosity from rich-world publics. (PDF, 224 KB) |
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| This is an executive summary of a book that describes forces affecting the aid industry, and presents scenarios for the future. The article highlights the changing nature of the aid industry due to unprecedented global prosperity, the time-specific Millennium Development Goals (MDGs), and the terrorist attacks of September 11, 2001. The full book is also available online. (PDF, 132 KB). |
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| The Society for International Devleopment (SID) supported these two community-driven scenario projects for Kenya and Tanzania. Facilitated by Barbara Heinzen, these Web sites include a discussion of the development scenario philosophy, design, and the scenario stories themselves. |
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| International Financial Institutions and Policies |
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| In this paper, the author analyzes the role of the World Bank and the International Monetary Fund (IMF) in the changing international economic system. Kruger offers some criticisms and possible reforms. This article was later published in the Journal of Economic Literature, and is a wide-ranging discussion. The author was a chief economist of the World Bank and later the deputy managing director of the IMF. (PDF, 3.66 MB) |
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| The authors challenge the way we think about foreign aid and make proposals and recommendations for the future of aid. They argue in favor of a "common pool" approach to aid donations, and argue that the provision of international public goods is now a pressing issue for the aid industry. (PDF, 308 KB)
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| Rogoff, formerly chief economist at the International Monetary Fund (IMF), argues that there is no longer a need for non-concessional lending, implying that the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) should be shut down, leaving the International Development Association (IDA) as the lending window of the World Bank Group. (PDF, 95.2 KB) |
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| In October 2004 the International Finance Organization (IFC) co-sponsored this forum for donors and recipients to debate the merits of grants versus loans in aiding development. It was co-sponsored by the Center for Global Development, KfW Bankengruppe, Japan Bank for International Cooperation and Agence Francaise de Development. |
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| The Role of the Private Sector |
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| This chapter from the Global Development Finance Report documents the importance of remittances as a source of development finance and discusses measures that developing and developed countries could take to increase remittances. The author shows that remittances are now larger and less volatile than official aid. The full text of the Global Development Finance Report is also available online. (PDF, 123 KB) |
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| The author argues that much of the foreign aid from the United States comes from the private sector – charitable giving, remittances, etc. The author also debated this thesis with Steve Radelet at a discussion at the Center for Global Development entitled "U.S. Aid: Generous or Stingy?"
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| The author focuses on the role of multinational development banks in private sector financing and analyzes past activities and operations as well as problems and prospects. The author specifically focuses on the International Finance Corporation (IFC) and surveys its aims and recent portfolio. (PDF, 200 KB) |
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| Output-based aid is a new and innovative lending instrument that delegates service delivery to the non-profit or for-profit private sector under contracts that tie payments to the outputs or results actually delivered to target beneficiaries. Designed as a guide for aid practitioners and policymakers in developing countries, this book gathers cases of innovative, output-based approaches from across the infrastructure and social sectors, including construction of schools and information technology learning facilities, energy, primary health care, roads, telecommunications, and water. Click here for French and Spanish translations. |
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