Increasing selectivity of foreign aid, 1984-2002

By David L. Dollar, V. Levin. 2004

608 citations recorded by the source corpus.

The authors examine the allocation of foreign aid by 41 donor agencies, bilateral and multilateral. Their policy selectivity index measures the extent to which a donor's assistance is targeted to countries with sound institutions and policies, controlling for per capita income and population. The poverty selectivity index analogously looks at how well a donor's assistance is targeted to poor countries, controlling for institutional and policy environment as measured by a World Bank index. The authors' main finding is that the same group of multilateral and bilateral aid agencies that are very policy focused are also very poverty focused. The donors that appear high up in both rankings are the World Bank's International Development Association, the International Monetary Fund's Enhanced Structural Adjustment Facility, Denmark, the United Kingdom, Norway, Ireland, and the Netherlands. As a robustness check the authors alternatively use institutional quality measures independent of the World Bank and find the same pattern of selectivity. They also find that policy selectivity is a new phenomenon: in the 1984-89 period, aid overall was allocated indiscriminately without any consideration to the quality of governance, whereas in the 1990s there was a clear relationship between aid and governance (institutions and policies). This increasing selectivity of aid is good news for aid effectiveness. The bad news is that the aid agencies that the authors survey vary greatly in size. Some donors that are largest in absolute size, such as France and the United States, are not particularly selective. Japan comes in high on the policy selectivity index but far down on the poverty selectivity index, reflecting its pattern of giving large amounts of aid in Asia to countries that are well governed but in many cases not poor.

Subfields: Development, Political Science and International Relations, Safety Research

View Paper: https://www.semanticscholar.org/paper/b866925ae876e943439bf0ecac87ceb955429ad0

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Citations in the corpus

Foreign Aid and Market-Liberalizing Reform (2005, unknown): “Second, most donors do not place the same emphasis on quality of policies and institutions as the IDA allocation system, and even IDA allocations were not well targeted toward recipients with better policies for most of the 1980-2000 period (Easterly, 2002; Dollar and Levin, 2004).”
Are Aid Agencies Improving (2007, unknown): “Th e IMF and World Bank (2006b, p. 83) later give the source for increasing selectivity based on need: “Dollar and Levin (2004) indicate that … the poverty elasticity of aid had strengthened for most of {bilateral} donors.””
US politics and World Bank IDA-lending (2006, background): “Dollar and Levin (2004) study the sensitivity of aid allocation to institutions and policy.”
More Dollars than Sense: Refining Our Knowledge of Development Finance Using AidData (2011, background): “…allocation formulae, which systematically direct more resources to countries with " good " policies, successful records of project implementation, and strong public sector management institutions (Asian Development Bank (ADB), 2005; Bourguignon & Sundberg, 2007; Dollar & Levin, 2006).”