How should donors give foreign aid? Project aid versus budget support

We develop a theoretical model to compare the two major foreign aid modalities: project aid and budget support. These two modalities have a different impact on the production of 'developmental goods'. Firstly, conditionality can be associated with budget support, but only a subset of the developmental expenses - the observable ones - can be subject to conditionality. Secondly, when using project aid, the donors control the overall allocation of the aid resources. However, we consider that, because of limited harmonisation and coordination, project aid can be associated with a cost of imperfect fit. We develop a unified framework to compare these two modalities where we allow the simultaneous utilisation of both instruments. We show that all the aid should be given via budget support, no matter whether conditionality is used or not. Furthermore, we show that the optimal use of conditionality depends on the recipient's developmental preferences, the productivity of the inputs and the level of aid compared to the recipient's budget: when these parameters are relatively high, conditionality should be enforced. Otherwise, the optimal aid allocation is such that all the aid is given through unconditional budget support. We conclude that conditionality does not always improve the aid effectiveness.conditionality - foreign aid - optimal contract

Social protection and energy susbidy reform in Burkina Faso

This BBL will discuss fossil fuel subsidies in the broader context of social protection in Burkina Faso. Rebekka Grun (Senior Economist, Social Protection and Labor), Frieda Vandeninden (Economist, Social Protection and Labor), and Amina Semlali (Consultant, Social Protection and Labor) worked with the government of Burkina Faso to determine whether resources allocated for social protection and social safety nets are cost-effective in reducing poverty and vulnerability. As part of this assessment, the team conducted a review of existing energy subsidies. A general recognition that Energy Subsidies are benefitting the rich more than the poor has provided the impetus for their reduction, yet in 2015 they still compromised 1% of GDP. Please join us to learn how the team assessed the distributional impact of energy subsidies and their removal, which led to the report “The Way Forward for Social Safety Nets in Burkina Faso” and is informing the preparation of the ongoing safety nets project “Scale-Up of Responding to needs of Refugees and Host Communities” as the Government works towards improving the efficacy of social protection systems in the country. To watch the recorded video of the BBL, please use this link: https://web.microsoftstream.com/video/bf87e18f-bc60-487c-b1a1-73f54c5f5ab

How should donors give foreign aid? Project aid versus budget support

Working paper GATE 2008-13 ; CREPP Working paper (Research Center on Public and Population Economics, HEC School, University of Liege)We develop a theoretical model to compare the two major foreign aid modalities: project aid and budget support. These two modalities have a different impact on the production of 'developmental goods'. Firstly, conditionality can be associated with budget support, but only a subset of the developmental expenses - the observable ones - can be subject to conditionality. Secondly, when using project aid, the donors control the overall allocation of the aid resources. However, we consider that, because of limited harmonisation and coordination, project aid can be associated with a cost of imperfect fit. We develop a unified framework to compare these two modalities where we allow the simultaneous utilisation of both instruments. We show that all the aid should be given via budget support, no matter whether conditionality is used or not. Furthermore, we show that the optimal use of conditionality depends on the recipient's developmental preferences, the productivity of the inputs and the level of aid compared to the recipient's budget: when these parameters are relatively high, conditionality should be enforced. Otherwise, the optimal aid allocation is such that all the aid is given through unconditional budget support. We conclude that conditionality does not always improve the aid effectiveness

Foreign Aid Transaction Costs: an application to Mali

The term 'transaction cost' has been widely mentioned in the recent literature on aid effectiveness. In fact, the shift into the aid delivery system (see e.g. the Paris Declaration on aid effectiveness) has been justified among others by the high transaction costs generated by the previous aid modalities. In this paper, we first want to understand what the notion of transaction costs means in the context of aid delivery and give a typology of the possible costs. We also develop an analytical framework to evaluate them. This framework appears to be a relevant tool to compare the effectiveness of aid modalities. We finally apply this analytical framework in Mali: we look at the evolution of the foreign aid transaction costs in two sectors (health and education) with the introduction of sector-wide programmes

A simulation of social pensions in Europe

The aim of this paper is to evaluate the impact in terms of poverty and cost of the introduction of social (or non-contributory) pensions in Europe. We use data from the household survey EU-SILC and focus on 17 countries. We simulate – in a static framework – the introduction of two social pension schemes: universal and means tested social pensions. We see that the old-age poverty would substantially decrease (average poverty rate goes from 19.7 to 2.5 per cent with the universal scheme) but not totally, even though the level of the universal pension is set up to the poverty line. The impact on poverty with the means tested social pension is quite similar (though always smaller) than the one with the universal pension, since most elderly have few other income sources than pensions. On the opposite, it costs less. In fact, the means test reduces substantially the number of entitled elderly while the universal pension leads to a ‘leakage’ to non-poor elderly

Do conditional cash transfers improve antenatal care outcomes in Senegal? Combining non-experimental and quasi-experimental evaluations

peer reviewedThis paper evaluates the effects of a conditional cash transfer (CCT) on antenatal consultations in Senegal. We conduct a non-experimental and a quasi-experimental evaluations, in which the control group is constructed using a propensity score matching method. While the non-experimental approach alone does not allow to conclude on the impact of the CCT, the quasi-experimental approach reveals that the CCT significatively increases antenatal consultations of beneficiaries. The combination of non-experimental and quasi-experimental evaluations has the potential to offer evaluation of social policies in a cost-effective way, using existing information, such as administrative data and already-collected survey data

Chapitre 3: PROTEGER LES PAUVRES PENDANT LA REPRISE ET AU-DELA

peer reviewedLa Note sur la situation économique du Burkina Faso est une publication périodique de la Banque mondiale (BM) qui met en évidence les tendances économiques récentes et discute des questions de développement pertinentes pour le pays. Elle s’appuie sur les études analytiques existantes et en cours de la Banque mondiale pour présenter et analyser les principaux problèmes économiques et sociaux actuels. La mise à jour est destinée au grand public et sert de véhicule pour contribuer aux débats entre les décideurs politiques, les ONG, les chercheurs et les citoyens concernant les choix économiques auxquels le pays est confronté

TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS

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