Rhetoric versus reality: the best and worst of aid agency practices

Easterly, William and Williamson, Claudia R. (2011): Rhetoric versus reality: the best and worst of aid agency practices. Published in: World Development , Vol. 39, No. 11 (2011): pp. 1930-1949.

Abstract

Foreign aid critics, supporters, recipients, and donors have produced eloquent rhetoric on the need for better aid practices— has this translated into reality? This paper attempts to monitor the best and worst of aid practices among bilateral, multilateral, and UN agencies. We create aid practice measures based on aid transparency, specialization, selectivity, ineffective aid channels, and overhead costs. We rate donor agencies from best to worst on aid practices. We find that the UK does well among bilateral agencies, the US is below average, and Scandinavian donors do surprisingly poorly. The biggest difference is between the UN agencies, who mostly rank in the bottom half of donors, and everyone else. Average performance of all agencies on transparency, fragmentation, and selectivity is still very poor. The paper also assesses trends in best practices over time—we find modest improvement in transparency and more in moving away from ineffective channels. However, we find no evidence of improvements (and partial evidence of worsening) in specialization, fragmentation, and selectivity, despite escalating rhetoric to the contrary.

• Item Type: MPRA Paper
• Language: English
• Keywords: foreign aid; best practices; transparency; bureaucracy; incentives
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; F - International Economics > F3 - International Finance > F35 - Foreign Aid

References

Acemoglu, D., Johnson, S., Robinson, J. A., & Yared, P. (2008). Income and democracy. American Economic Review, 98(3), 808–842.

AidData Database (2010). http://www.aiddata.org.

Bauer, P. T. (2000). From subsistence to exchange. Princeton: Princeton University Press.

BenYishey, A., & Wiebe, F. S. (2009). Can aid agencies follow best practices? An Assessment of the Millennium Challenge Corporation’s Aid Practices Based on Easterly & Pfutze (2008). Millennium Challenge Corporation Working Paper.

Birdsall, N., Kharas, H., & Mahgoub, A. (2010). A quality of development assistance index. Center for Global Development and the Wolfensohn Center for Development at the Brookings Institution.

Boone, P. (1996). Politics and the effectiveness of foreign aid. European Economic Review, 40(2), 289–329.

Brautigam, D., & Knack, S. (2004). Foreign aid, institutions and governance in sub-saharan Africa. Economic Development and Cultural Change, 52(2), 255–286.

Brumm, H. J. (2003). Aid, policies and growth: Bauer was right. Cato Journal, 23(2), 167–174.

Center for Global Development (2007). Measuring the quality of development assistance: Discussion draft. Washington, DC: Center for Global Development.

Cheibub, J. A., Gandhi, J., & Vreeland, J. R. (2010). Democracy and dictatorship revisited. Public Choice, 143(1-2), 67–101.

Collier, P., & Dollar, D. (2002). Aid allocation and poverty reduction. European Economic Review, 46(8), 1475–1500.

Commission for Africa (2005). Our common interest: Report of the commission for Africa. London, UK.

Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2006). Does foreign aid help?. Cato Journal, 26(1), 1–28.

Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2008). The curse of aid. Journal of Economic Growth, 13(3), 169–194.

Dollar, D., & Levin, V. (2006). The increasing selectivity of foreign aid, 1984–2003. World Development, 34(12), 2034–2046.

Easterly, W. (2001). The elusive quest for growth: Economists’ adventures and misadventures in the tropics. Cambridge, MA: MIT Press.

Easterly, W. (2006). The white man’s burden: Why the west’s efforts to aid the rest have done so much ill and so little good. New York, NY: Penguin Press.

Easterly, W. (2007). Are aid agencies improving?. Economic Policy, 22(52), 633–678.

Easterly, W., Levine, R., & Roodman, D. (2004). New data, new doubts: A comment on Burnside and Dollar’s ‘Aid, Policies, and Growth’. American Economic Review, 94(3), 774–780.

Easterly, W., & Pfutze, T. (2008). Where does the money go? Best and worst practices in foreign aid. Journal of Economic Perspectives, 22(2),29–52.

Frot, E., & Santiso, J. (2009). Development aid and portfolio funds: Trends, volatility and fragmentation. OECD Development Centre Working Papers #275.

Hartford, T., & Klein, M. (2005). Aid and the resource curse. The World Bank Group No. 291.

Heckelman, J., & Knack, S. (2008). Foreign aid and market liberalizing reform. Economica, 75(299), 542–548.

IMF and World Bank (2005). Global monitoring report 2005: Millennium development goals: From consensus to momentum. Washington, DC:World Bank.

IMF and World Bank (2006). Global monitoring report 2006: Strengthening mutual accountability—aid, trade, and governance. Washington, DC: World Bank.

IMF and World Bank (2010). Global monitoring report 2010: The MDGs after the crisis. Washington, DC: World Bank.

International Aid Transparency Initiative. (http://www.aidtransparency. net).

International Country Risk Guide (2008). Corruption index. Syracuse, NY: The PRS Group.

Knack, S. (2001). Aid dependence and the quality of governance: Cross-country empirical tests. Southern Economic Journal, 68(2), 310–329.

Knack, S. (2004). Does foreign aid promote democracy?. International Studies Quarterly, 48(1), 251–266.

Knack, S., & Rahman, A. (2007). Donor fragmentation and bureaucratic quality in aid recipients. Journal of Development Economics, 83(1), 176–197.

Knack, S., Rogers, F. H., & Eubank, N. (2010). Aid quality and donor rankings. World Bank Policy Research Working Paper No. 5290.

Marshall, M. G., & Jaggers, K. (2004). Polity IV project: Political regime characteristics and transitions, 1800–2004 dataset users manual manuscript. Arlington, VA: Center for Global Policy School of Public Policy, George Mason University. Dataset available at: http:// www.cidcm.umd.edu/polity.

Martens, B., Mummert, U., Murrell, P., & Seabright, P(2002). The institutional economics of foreign aid. Cambridge University Press.

Moyo, D. (2009). Dead aid: Why aid is not working and how there is a better way for Africa. NY, NY: Farrar, Straus and Giroux.

OECD (2003). 2003 Rome declaration on harmonization. Rome: OECD.

OECD (2005). 2005 Paris declaration on aid effectiveness. Paris: OECD.

OECD (2008). 2008 Accra high level forum on aid effectiveness. Accra: OECD.

OECD DAC Database. (http://www.oecd.org/document/33/0,2340,en_2649_34447_36661793_1_1_1_1,00.html#dac).

Ovaska, T. (2003). The failure of development aid. Cato Journal, 23(2), 175–188.

Persson, T., & Tabellini, G. (2006). Democracy and development: The devil in the details. American Economic Review Papers and Proceedings, 99(2), 319–324.

Przeworski, A., & Limongi, F. (1997). Modernization: Theory and facts. World Politics, 49(2), 155–183.

Przeworski, A., Alvarez, M., Cheibub, J. A., & Limongi, F. (2000). Democracy and development: Political institutions and material wellbeing in the world, 1950–1990. New York, NY: Cambridge University Press.

Publish What You Fund (2010). Aid transparency assessment 2010. London: Publish What You Fund.

Roodman, D. (2006 and 2009). An index of donor performance. Center for Global. Development Working Paper Number 67. Data set updated 2009.

Smith, A. (1991[1776]). The wealth of nations. New York, NY: Alfred A. Knopf, Everyman’s Library.

Svensson, J. (1999). Aid and growth: Does democracy matter?. Economics & Politics, 11(3), 275–297.

Svensson, J. (2000). Foreign aid and rent-seeking. Journal of International Economics, 51, 437–461.