Effectiveness Of Development Aid Research Articles

Trust funds and the sub-national effectiveness of development aid: Evidence from the World Bank

Existing studies imply that multilateral development assistance is more effective than bilateral assistance. However, multilateral assistance is increasingly constrained through earmarked funding where donors restrict the use of their funds. Such funding shifts decision-making power away from multilateral donors and increases transaction costs through more stringent monitoring requirements. We argue that the consequences of these constraints are negative for aid effectiveness. We test this argument by studying the effectiveness of the World Bank in increasing economic growth. Our research design combines novel data on the funding composition of growth-focused development projects between 1995 and 2014 with georeferenced data on their sub-national locations within 50x50km grid cells. Using difference-in-differences estimation, we assess whether local economic development, measured through the Gross Cell Product, increases in areas where core- and trust-funded projects were located in the previous year. We find that while growth-focused projects are generally effective, core-funded projects have a substantially greater impact than trust-funded projects. These findings imply that donors should consider allocating a greater share of their multilateral development assistance as unearmarked contributions if they want to safeguard the development impact of this assistance.

Effectiveness of aid on educational dropout in post-Genocide Rwanda

This study investigates the effects of the Rwandan Genocide on the probability of primary educational dropout between 1995 and 2019 and how development aid moderates those effects. Specifically, this study examines the role of proximity to genocide-target areas and the degree to which development aid may have moderated the altered household economic opportunities. The results indicate that: (i) geographical proximity to genocide-targeted areas does not increase the probability of dropout; (ii) development aid reduces the probability of dropout within genocide proximity by 20 %; and (iii) The effects of development aid are particularly high in low-income households, making dropout 10.6 % less likely. In sum, development aid plays a significant role in overcoming the long-term effects of the genocide.

Effects of development aid (grants and loans) on the economic dynamics of the recipient country

This paper investigates the nexus between foreign aid (in both forms: grant and loan), poverty trap, and economic development in a recipient country by using a Solow model with two new ingredients: a development loan and a fixed cost in the production process. The presence of this fixed cost generates a poverty trap. We show that foreign aid may help the country to escape from the poverty trap and converge to a stable steady state in the long run, but only if (i) the country’s characteristics, such as saving rate, initial capital, governance quality, and productivity are good enough, (ii) the fixed cost is relatively low, and (iii) the loan rule is generous enough. We also show that our model with foreign aid has room for endogenous cycles, unlike the standard Solow model.

The conditions for effective agricultural development assistance in the Ivorian context

This article focuses on the conditions for the effectiveness of development aid for the Ivorian agricultural sector. Speaking of development aid, this study focuses on official development assistance for agriculture, better known as agricultural ODA. The study was conducted in both the Abidjan (south) and Korhogo (north) areas. Following a qualitative tradition conducted using purposive sampling and snowballing techniques, we conducted a total of eighteen (18) interviews with approximately twenty-five (25) respondents as part of this research. Three (3) categories of actors were targeted : institutional or structural actors at the national level (AISN), local structural actors (ASL) and peasant actors (AP). The study revealed that the constraints that obstruct the effectiveness of agricultural ODA in the Ivorian context are "political-economic", "structural-institutional" and "practical-rural".

Aid and social cohesion

A plethora of work has been done on the effectiveness of foreign aid. However, virtually none of the previous cross- country macro studies have investigated the impact of aid on social cohesion. Yet, in order to promote the achievement of the targets in SDG 16, donors and global partners of developing countries have put emphasis on social cohesion in recent decades. As a result, large amounts of development aid have been channeled into many developing countries to support the building of peaceful, just, and inclusive societies. The question is, however, can aid bolster cooperation and respect among different identity-based groups in a country? We contribute to the literature by exploring the effect of development aid on social cohesion for a relatively large panel of aid-recipient countries. Our empirical results suggest that foreign aid has a strong, positive, and significant relationship with social cohesion. Moreover, the results reveal that in less cohesive countries aid is positively and significantly associated with social cohesion; but this relationship becomes insignificant, statistically, in more cohesive societies. The main results are robust to various specifications, estimation procedures, and measures of aid used.

Effects of Development Aid on Donor’s Exports: A Case of the Czech Republic

Abstract The main goal of foreign aid should be the support of developing regions; however, due to the rising international requirements on the amount of provided aid, donors start to focus on the benefits aid can bring them as well. Both country-specific and general studies have been conducted to evaluate the return of aid from the donor’s perspective, with the majority of them suggesting that provided aid boosts donor’s exports to the developing countries. As no such analysis exists for the Czech Republic, this paper tries to fill this gap and aims to find out whether there is a positive relationship between the Czech aid and Czech exports. While employing the gravity model of international trade, the study, however, suggests that the Czech aid is not statistically significant for the volume of Czech exports. Unlike other donors, the Czech Republic thus leaves a considerable trade potential arising from the foreign aid untapped. The reasons might be other motives behind the Czech aid (both official and unofficial), poor co-operation of aid and trade policies, or changes in trade patterns.

Development Aid and Export Resilience in Developing Countries: A Reference to Aid for Trade

The COVID-19 pandemic, as with previous major crises, such as the 2008 financial crisis, has had a severe negative impact on international trade flows. The present paper aims to contribute to the debate concerning how to foster resilience against future crises, in terms of countries’ aggregate exports, by examining the effect of development aid (i.e., so-called official development assistance), particularly the impact of the Aid for Trade (AfT) component, upon export resilience. The resilience of exports refers to the ability of countries’ aggregate exports to resist shocks, regardless of whether they are environmental or external shocks. The core argument of the analysis is that development aid would affect export resilience through its impact upon productive capacities. The analysis covers 93 developing countries over the period 2002–2018. The findings indicate that the total development aid flows, including both AfT flows and NonAfT flows, exert a positive effect upon export resilience. Among AfT components, AfT for productive capacities appears to exert a greater positive effect upon export resilience than AfT for economic infrastructure and AfT for trade policy and regulation. In addition, development aid (regardless of which aid variable is considered) exerts the greatest positive effect upon export resilience in countries (such as the least developed countries—LDCs) that have the lowest productive capacities. These findings highlight the need for donor countries to supply higher development aid flows, in particular, AfT flows, to countries such as LDCs that have low productive capacities.

Development Aid, Economic Growth Volatility and Poverty Volatility in Developing Countries

This article has analysed the effect of development aid flows on poverty volatility in developing countries, including through the economic growth volatility channel. Using a sample of 106 countries over the period 1980-2017, and the two-step system Generalized Methods of Moment (GMM) technique, the analysis has shown that development aid flows dampen the positive poverty volatility effect of economic growth volatility: the magnitude of the negative effect of development aid on poverty volatility rises as the degree of economic growth volatility increases. Additionally, development aid exerts a higher negative effect on poverty volatility as countries face higher poverty rates. These findings highlight the importance of development aid for stabilizing poverty rates.

The Effectiveness of Development Aid – EU as a Leader?

The Effectiveness of Development Aid – EU as a Leader?

Aid for Trade and the Real Exchange Rate

ABSTRACT The current analysis contributes to the literature on the real exchange rate effect of development aid by separating the real exchange rate effect of the development aid allocated to the trade sector (Aid for Trade – AfT) from the effect of other aid flows. The empirical findings show that higher AfT flows lead to a depreciation of the real exchange rate in recipient economies, while other development aid flows generate an appreciation of the real exchange rate. The real exchange rate effect of total AfT flows works through trade openness, export product diversification, and inward foreign direct investment stock.

Child labor, social capital, and economic development*

AbstractGlobally, 152 million children are involved in economic activities. Poverty is the main cause of child labor, and the lack of social norms and inadequate legal systems are contributing factors. In order to understand the cause of child labor and provide appropriate assistance, this paper focuses on the accumulation of human capital and social capital. The first part of the paper shows that, historically, child labor has been highly dependent on the initial endowments of human capital and social capital. We also show that the condition of bifurcation from an identical initial condition depends on the productivity derived from social capital. The second part of the paper examines the effect of development aid in recipient countries, particularly the effect of two types of programs that attempt to eliminate child labor and provide support to strengthen social capital. We show that both programs are effective at making the economy better off. However, large amounts of development aid for the program that strengthens social capital can make the economy of middle‐income countries worse off.

The effects of development aid on irregular migration to Europe: Deterrence or attraction?

AbstractMotivationResponding to growing immigration concerns in recent years, European countries have claimed to tackle the root causes of migration using development assistance. Some recent analyses find more aid to be associated with lower immigration, providing support to this policy. But these findings rely on measures of regular migration, while donors’ concern is centred on irregular migrants.PurposeThis study tests whether development aid has a deterrent effect on irregular migration to Europe.MethodsAdopting innovative data on irregular migration flows to Europe between 2009 and 2016, a simultaneous equations model accounts for the potential endogeneity of both total and bilateral aid.FindingsThe study finds that total aid does not significantly reduce numbers of migrants apprehended at Europe’s border. Moreover, bilateral aid tends to raise these numbers. The estimated costs for each deterred irregular migrant are high: in the best‐case scenario the range is between USD 150,000 and USD 320,000. The estimated costs to deter regular migrants are even higher, between USD 0.9 million and USD 2.5 million. Both estimates concur with those from previous work. Findings are robust to different aid measures and specifications.Policy implicationsEmpirical results provide no evidence to support the use of development aid to deter migration.

Aid Fragmentation and Corruption

Effectiveness of development aid is widely perceived to suffer in the presence of multiple donors with overlapping responsibilities. We test existing theory on aid fragmentation by studying aid provision under numerous donors throughout Afghanistan from 2006-2009. Leveraging granular military data on aid, conflict, corruption, and public opinion, we conduct the first micro-level analysis of aid fragmentation. When delivered by a single donor, aid reduces conflict, curtails corruption, and boosts public opinion. But under donor fragmentation, the benefits of aid are significantly reduced. We are able to distinguish among various causal pathways underlying these heterogeneous effects. Our findings are robust to accounting for a battery of novel observable confounding factors as well as a computational bounding exercise used to assess potential bias arising from unobserved factors. Our evidence suggests fragmentation facilitates corruption and erodes the ability of development aid to win ‘hearts and minds’ in the fight against insurgents. This study yields potentially actionable insights about improving government policy and public welfare outcomes in fragile and weakly institutionalized settings.

Aid, Governance and Public Finance Fraud: Evidence from Angola

This article examines the process of public finance fraud leading to unjust enrichment of ruling elites in Angola, a resource-rich, yet ironically povertytrapped country, owing to decades of rule of José Eduardo dos Santos. It analyses the phenomenon of political corruption in the Angolan context, translating into mismanagement of public revenues coming from natural resources as a means of attaining private economic benefits and consolidating power. Moreover, by examining cross-border inter-company networks aimed at concealing public assets behind front companies, the author attempts to establish a connection between corruption and illicit financial flows. Ultimately, since political corruption is intrinsically linked to governance, the article looks at the impact of the latter on social development as well as on the effectiveness of development aid granted to Angola. It was written based on secondary resources including existing literature and material evidence. Its findings and conclusions correspond with the overall theory postulated by the academic community, maintaining that natural resources and aid have negative impact on governance, institutional accountability, and in consequence on human development, especially in countries characterised by despotic rule.

Development aid, remittances inflows and wages in the manufacturing sector

This article has considered the effect of development aid and remittances inflows on wages in the manufacturing sector of recipient economies. The empirical analysis has used a sample of 95 countries over the period 1969–2016 and relied on the two-step system generalized methods of moments. Results show for the full sample that while remittances influence positively wages (notably in remittances-dependent countries), development aid exerts a negative effect on wages. Additionally, the effects of development aid and remittances on wages depend on the prevailing real exchange rate as well as on the values of manufacturing exports.

Examining the interactive growth effect of development aid and institutional quality in Sub-Saharan Africa

ABSTRACT This study analyses the interconnectivity of growth, aid and institutions in Sub-Saharan Africa based on annual data for a panel of 39 nations from 1996-2017. The hypothesis that the growth impact of aid and institutions could be interactive was examined. The results indicate that aid has a direct positive and an indirect negative growth impact through its interaction with domestic institutions. The synergistic growth impact of aid and institutions is found to be substitutive rather than complementary. This substitutive effect is most pronounced in Western Africa, followed by Eastern Africa, then Southern Africa, and least pronounced in Central Africa.

Effect of Development Aid on Tax Reform in Recipient-Countries: Does Trade Openness Matter?

Based on a proposed measure of tax reform in developing countries, this paper examines both how tax reform is influenced by development aid flows, and whether this effect depends on countries’ degree of openness to international trade. Tax reform involves here the change of the tax structure in favor of domestic tax revenue and at the expense of trade tax revenue. Empirical results based on 102 developing countries over the period 1980–2015 suggest that development aid exerts a positive effect on tax reform in developing countries, with relatively less advanced countries enjoying a higher positive effect than advanced developing countries. Additionally, recipient-countries’ degree of trade openness matters for the effect of development aid on tax reform.

Heterogeneous Effects of Development Aid on Violent Unrest in Postwar Countries: Village-Level Evidence from Nepal

AbstractMany countries experience massive aid surges when civil wars end. However, operational contexts tend to remain particularly sensitive due to a combination of persisting local-level cleavages and low-quality state institutions. Consequently, aid provision risks inciting distributional conflicts and violent unrest—most notably when resources are injected into areas of high social heterogeneity or particularly weak state administration. I investigate this argument in the case of postwar Nepal. I combine geo-coded aid data with village-level information on various forms of violent unrest, as well as on social demographics and institutional quality. The panel analyses indicate positive short-term effects of aid on social unrest. More fine-grained estimations reveal that this effect is driven by a short-term escalation of violence against nonstate actors—in particular in ethnically fractionalized villages under the administration of weakly performing local-level state institutions. Descriptive cross-country analyses indicate that aid may have similar violence-inducing effects in other postwar contexts.

Conditional effects of development aid on political perceptions: mixed-methods evidence from North-East Afghanistan

Can aid create political trust in conflict-affected states? International aid organizations often argue that supporting states in providing basic services can contribute to strengthening state–society relations. Previous studies in international development have indicated that the provision of basic services can indeed improve people’s attitudes towards state institutions. We take this research a step further: in addition to analysing the impact of aid on political trust, we assess how violence influences this effect. We argue that aid can create opportunities for constructive state–society interactions. As violence increases, however, development-related interactions are crowded out by security-related ones. Violence also fosters corrupt aid governance, which undermines the positive effects of aid on public perceptions. We analyse this hypothesis with a mixed-methods research design that combines original opinion survey data with qualitative interview material systematically collected in 252 villages of northeast Afghanistan. Based on a combination of (a) quantitative analyses, (b) a comparison of most-similar villages, (c) a systematic comparison of qualitative survey response patterns across levels of insecurity, and (d) an in-depth analysis of interview material on aid and trust in highly insecure areas, we show that violence negatively impacts the relative relevance as well as the quality of aid-related state–society interactions. These findings indicate that international aid agencies should refocus from mainly output-oriented project appraisal, design, and monitoring to a stronger process orientation that maximizes state–society interaction and prevents elite capture in areas exposed to high levels of violence.

The effectiveness of development aid for agriculture in Sub-Saharan Africa

PurposeAgriculture is the major source of livelihood for the majority of population in Sub-Saharan Africa but its productivity is not only low it has started showing signs of decline since 2012. The purpose of this paper is to find out whether official development assistance for agriculture is effective.Design/methodology/approachThe data for development assistance for agriculture are broken down into the major agricultural sectors in receiving countries. The empirical evidence is based on the two-step system, i.e. generalized method of moments, to assess the degree of responsiveness of agricultural productivity to development assistance.FindingsThere is a positive relationship between development assistance and agricultural productivity in general. However, when broken down into the major agricultural recipient sectors, there is a substitution effect between food crop production and industrial crop production. Better institutions and economic freedom are found to enable agricultural productivity growth, and to increase the effectiveness of development assistance. The structural economic transformation associated with agricultural development assistance is also found to be weak.Practical implicationsAllocation of development assistance for agriculture is primarily determined by need, although expected effectiveness also increases the assistance receipts. Agricultural assistance policies could focus more on building productive capacity to reduce the need while boosting effectiveness.Originality/valueBreaking down data into agricultural recipient sectors and controlling for the potential spurious correlation under the assumption that more development assistance could be allocated, where agricultural productivity is already increasing due to some other factors.