Are growth diagnostics biased against the poor? Evidence from the Millennium Challenge Corporation

Abstract

AbstractMotivationThe growth diagnostics methodology was developed to encourage context‐specific problem‐solving and priority‐setting as a substitute for the universal prescriptions that characterized the Washington Consensus era. While growth diagnostics have been praised and become popular in development planning, little is known about what they do in practice.PurposeThe Millennium Challenge Corporation (MCC), a new aid agency, adopted growth diagnostics in 2007 to guide decision‐making for bilateral development assistance after forging nearly 20 agreements informed by existing Poverty Reduction Strategy Papers. This study examines how the MCC’s adoption of growth diagnostics affected its development investments.Approach and methodsThe study used a mixed‐methods approach with primary and secondary data and an interrupted time‐series research design that compares MCC agreements designed with and without growth diagnostics.FindingsThe study found that growth diagnostics helped move the MCC’s investment portfolio away from multi‐sector integrated rural development programmes aimed at high‐poverty regions towards programmes in fewer sectors concentrated in urban areas with large policy and institutional reform components reminiscent of earlier structural adjustment programmes. The article explains how features of the growth diagnostic methodology largely contributed to these changes.Policy implicationsDevelopment planners committed to using diagnostics should employ inclusive growth diagnostics, which modify the original diagnostic in ways that identify and target constraints to achieve pro‐poor growth.