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Better Policies from Policy-Selective Aid?

Author

Listed:
  • Kurt Annen
  • Stephen Knack

Abstract

The increased policy selectivity of aid allocations observed in recent years provides aid-recipient countries with an incentive to improve policies. The paper estimates that a change in the World Bank’s Country Policy and Institutional Assessment policy index from 1.5 to 2 for a recipient is associated with an increase of about 13 percent in aid. The analysis also finds a modest but statistically significant positive relationship between the global level of policy-selective aid and policy, suggesting that policy-selective aid improves policies in aid-recipient countries. This effect is properly identified, as the level of policy-selective aid in the global aid budget is exogenous to a recipient country’s policy choice. Furthermore, the paper provides a game-theoretic model that establishes the link between the policy selectivity of the global budget and better recipient-country policies in equilibrium.

Suggested Citation

  • Kurt Annen & Stephen Knack, 2021. "Better Policies from Policy-Selective Aid?," The World Bank Economic Review, World Bank, vol. 35(4), pages 829-844.
    • Handle: RePEc:oup:wbecrv:v:35:y:2021:i:4:p:829-844.
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    File URL: http://hdl.handle.net/10.1093/wber/lhaa017
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    Cited by:

    1. Marchal, Léa & Naiditch, Claire & Simsek, Betül, 2021. "Managing Migration Flows Through Foreign Aid," ILE Working Paper Series 46, University of Hamburg, Institute of Law and Economics.
    2. Axel Dreher & Jenny Simon & Justin Valasek, 2021. "Optimal decision rules in multilateral aid funds," The Review of International Organizations, Springer, vol. 16(3), pages 689-719, July.
    3. Philip Keefer & Christopher Kilby, 2021. "Introduction to the special issue: In memoriam Stephen Knack," The Review of International Organizations, Springer, vol. 16(3), pages 473-493, July.
    4. Christopher Kilby, 2020. "Accounting for data uncertainty: Biases in web-scraped Chinese aid data," Villanova School of Business Department of Economics and Statistics Working Paper Series 45, Villanova School of Business Department of Economics and Statistics.
    5. Yoojin Lim & Youngwan Kim & Daniel Connolly, 2023. "Assessing the impact of aid on public health expenditure in aid recipient countries," Development Policy Review, Overseas Development Institute, vol. 41(1), January.

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