Does Aid Effectiveness Depend on the Quality of Donors?. (December 2017)

• Record Type: Journal Article
• Authors: Minasyan, Anna; Nunnenkamp, Peter; Richert, Katharina
• Is Part Of: World development. Volume 100(2017)
• Page Start: 16
• Page End: 30
• Publication Date: 2017-12
• Subjects: donor ranking -- quality-adjusted aid -- income effects -- aid effectiveness -- Paris declaration -- DD analysis; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2017.07.023
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: We address the question of whether the quality of donors matters for aid effectiveness. We compare the effects of quality-adjusted and unadjusted aid on changes in GDP per capita. We perform a difference-in-differences analysis. We find significant and quantitatively important treatment effects for quality-adjusted aid. The quality of aid matters most when accounting for delayed effects. Summary: It has been intensively and controversially discussed whether "good" economic policies and governance in the recipient countries render foreign aid more effective in alleviating poverty and stimulating economic growth. By contrast, the question of whether aid recipient countries would benefit from stronger income effects if foreign donors provided higher quality aid has received scant attention so far. We make use of the index of donor performance from the Center for Global Development to compare the effects of quality-adjusted aid and unadjusted aid on changes in GDP per capita. Our difference-in-differences analysis reveals significant and quantitatively important treatment effects for quality-adjusted aid after the introduction of the Paris Declaration on Aid Effectiveness in 2005, while we do not find significant treatment effects for unadjusted aid. This implies that only recipient countries with increased aid inflows of high quality benefit in terms of increasing GDP per capita. The quality of aid matters most when accounting for delayed effects. However, our results depend on the sample of recipient countries.