Aid to conflict-affected countries : lessons for donors

Investigates how aid might prevent conflicts from breaking out or becoming worse.

Background paper : "Aid effectiveness and selectivity : integrating multiple objectives into aid allocation"

Research on development aid has largely focused on the effectiveness of these transfers in promoting growth or on their allocation among developing countries. Rarely if ever did these research areas intersect, in that studies seeking to explain observed or prescribe optimal inter-country aid allocations did not take into account effectiveness issues and vice versa. Collier and Dollar (C-D, 2002), in a move broadly consistent with the IDA’s long-standing approach to its country allocation system, changed this state of affairs with their “aid selectivity” approach to inter-country aid allocation. C-D, building on the empirical work of Burnside and Dollar (B-D, 1997, 2000), which concluded that the effectiveness of aid in promoting growth depended on the policy regimes of recipient countries, derived “poverty efficient” inter-recipient aid allocations. According to the prescriptive C-D selectivity approach, optimal aid allocation favours countries with high levels of poverty, low per capita incomes and sound policy regimes. Such allocations are considered poverty efficient by maximising the number of people pulled out of poverty. Countries with unsound policies regimes receive less aid in the C-D selectivity approach as these regimes lessen aid’s impact on growth and thus poverty reduction.

Modelling aid allocation : issues, approaches and results

There is a widespread view that political criteria have received less emphasis in aid allocation since the end of the cold war, with a greater share of aid subsequently being based on developmental criteria. An observed increase in aid effectiveness is attributed to this shift. A reasonably large literature on aid allocation supports this view: a number of influential, widely cited studies conclude that developmental criteria played no role in the 1970s and 1980s inter-recipient aid allocation. This paper argues that the shift is not as significant as commonly thought. It points to a number of methodological weaknesses in the dominant modelling approach used within the literature, showing that more rigorous econometric methods suggest that developmental criteria have had a larger influence on cold war period aid allocation than previously thought. An alternative interpretation of the observed increase in aid effectiveness is provided.

Descriptive and prescriptive analyses of aid allocation : approaches, issues and consequences

Studies of the interrecipient allocation of aid may be categorized threefold. First, there are those that attempt to explain the observed allocation of aid. Second, there are those that seek to describe or evaluate the allocation of aid against normative criteria. Third, there are those that seek to prescribe the interrecipient allocation of aid by calculating the amounts of aid each country should receive, also based on normative criteria. This article looks at the second and third categories of studies. It commences by looking at the different approaches and a descriptive measure used, and then repeats this exercise for the prescriptive literature. It then looks at differences between the prescribed allocations of the different approaches used in the literature. These allocations are then compared with actual allocations and evaluated against various normative criteria. This reveals significant differences, both between prescribed and actual allocations and the evaluations of the different prescriptive approaches.