Implicit aid contracts

I thought this was a very interesting and readable paper about aid effectiveness by François Bourguignon and Mark Sundberg.   They describe an emerging consensus for the aid architecture, based on what they call implicit aid contracts:

The use of implicit aid contracts, based on monitorable evidence of improvement in final results and the observable quality of policies, is the direction in which donors are beginning to move. Aid allocation is increasingly done on the basis of country performance that combines governance, general policy environment and some intermediate or final results. The use of the CPIA index, although imprecise in its coverage, is a move in that direction. The selectivity of aid allocation based on the quality of governance and general policies, has increased significantly since the mid-1990s, particularly among the multilateral institutions but also among bilateral agencies, possibly pointing to the emergence of a new model. Consistent with this trend is the donor commitment to make aid more predictable, and deliver more aid as budget support rather than tying it to specific imports, projects, or policies.

I agree with that, though I think we may go further than this implies towards linking aid to ex post outputs, and rather less to measures of governance and policy environment.

1 thought on “Implicit aid contracts”

  1. It’s a good article. Owen have you read David Ellerman’s new book (Helping People Help Themselves)? I have not yet, but am about to. It looks interesting on incentives for recipient governments to actually change policy based on the fact that they often have different incentives to donors.

    To make the problem more complicated, all the cutting edge research on economic growth in catch-up countries (coming out of KSG, Harvard for example) is stressing that focusing on ‘best practice’ in policy reform in key areas often signaled or conditioned by donors is a highly inefficient and quite posssibly counter-productive method of driving economic growth and poverty reduction. To that extent I am much more in favour of money for results, but it would require massive investments in measurement and statistics capacity; measuring results is very far from easy.

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