Aid tying and donor fragmentation

This study tests two opposing hypotheses about the impact of aid fragmentation on the practice of aid tying. In one, when a small number of donors dominate the aid market in a country, they may exploit their monopoly power by tying more aid to purchases from contractors based in their own countries. Alternatively, when donors have a larger share of the aid market, they may have stronger incentives to maximize the development impact of their aid by tying less of it. Empirical tests strongly and consistently support the latter hypothesis. The key finding -- that higher donor aid shares are associated with less aid tying -- is robust to recipient controls, donor fixed effects and instrumental variables estimation. When recipient countries are grouped by their scores on corruption perception indexes, higher shares of aid are significantly related to lower aid tying only in the less-corrupt sub-sample. This finding is consistent with the argument that aid tying can be an efficient response by donors when losses from corruption may rival or exceed losses from tying aid. When aid tying is more costly, as proxied by donor country size and income, it is less prevalent. Aid tying is lower in the Least Developed Countries, consistent with the OECD Development Assistance Committee's recommendation to its members.Gender and Health,Development Economics&Aid Effectiveness,Disability,School Health,Economic Theory&Research

What determines the suspension of budget support in Sub-Saharan Africa?

This working paper examines what determines the suspension of budget support in Sub-Saharan Afric

World Bank Policy Lending and the Quality of Public Sector Governance

This study investigates the impact of World Bank development policy lending for public sector governance on the quality of public sector management and institutions. The World Banks Country Policy and Institutional Assessments (CPIA) are used to measure the latter, the study considers only policy conditions targeted at improvements in those areas. The analysis uses a comprehensive country-year panel data set of aid receiving-countries and finds a significant and inverse U-shaped effect of public sector conditions on the quality of public sector governance. For most observed values in the data, the impact is positive, but it turns negative beyond a value of 80 conditions. At that point, the predicted CPIA score is about 0.25 point (0.3 standard deviation) higher than with zero conditions. For most observations, the number of cumulative conditions is below 80, so the estimated effect of more conditions is generally positive. The analysis corrects for potential endogeneity and shows that the results are robust to sample restrictions, the use of an alternative governance measure, and the inclusion of an extended set of control variables. Falsification tests are also consistent with a causal interpretation from conditions to quality of public sector governance. The paper shows that conditions related to public financial management and tax reforms are more effective than those related to anti-corruption or civil service and administrative reform, where progress requires changing the behavior of a larger set of deconcentrated actors. The paper concludes by describing some innovative ideas in the Banks ambitious new public sector management strategy that could improve the effectiveness of its support for public sector governance reform. Document type: Boo

Supporting policy reform from the outside

Sound economic and social policies are important if countries wish to prosper and achieve sustainable development. It is far from guaranteed, however, that policymakers select and implement good policies, which provides a rationale for external policy support. Indeed, many organizations are engaged in supporting policy reform processes in recipient countries. This study investigates the limits and opportunities of supporting policy reform by focusing on four dimensions of support: conditional financing, policy dialogue, technical evidence and political institutions. Four findings follow from a review of the literature. First, without commitment on the recipient side, conditional financing is unlikely to induce policy reform. Second, when external actors acquire a seat at the policy dialogue table, it is important to detect (and influence) the beliefs policymakers hold. Third, outside parties should bring sound evidence to the table about the costs, benefits and effectiveness of their policy proposals. Finally, supporting changes in political institutions without considering general equilibrium effects can be counterproductive. The study concludes with a discussion and some avenues for future research in this field.status: publishe

Is it the journey that matters? A fresh look at the impact of World Bank policy lending

This paper investigates the impact of World Bank development policy operations on the quality of economic policy during the period 1998–2015. A new theoretical framework distinguishes among three effects that have been conflated hitherto: (a) marginal impacts of additional policy actions within the current year; (b) length of the policy engagement with client countries, and (c) changes over time in the marginal impact of policy actions. The analysis focuses on policy actions that are particularly relevant for the quality of economic management. Consistent with past research, robust panel estimations indicate that development policy financing has a positive effect on the quality of government economic policy. The econometric work suggests that the nature of the policy dialogue and quality of the engagement with government matter more than the sheer number of policy actions adopted. There is also tentative evidence that although the positive impact is sustained over time, the initial years of an engagement are the most productive for improvement in government economic policy. This may be linked to the fact that over time the reform program changes from ‘first-generation’ to more complex ‘second-generation’ policy actions.status: publishe