Publication: Better Policies from Policy-Selective Aid?
This paper shows that the increased policy-selectivity of aid allocations observed in recent years provides recipient countries an incentive to improve policies. The paper estimates that a change in the World Banks 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 share of policy-selective aid in the global aid budget and policy, suggesting that policy-selective aid improves policies. This effect is properly identified, as the share of policy-selective aid in the global aid budget is exogenous to recipient country policy choices. 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.
“Annen, Kurt; Knack, Stephen. 2019. Better Policies from Policy-Selective Aid?; Better Policies from Policy-Selective Aid?. Policy Research Working Paper;No. 8889. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/02703d08-2faa-55c7-8497-3b0ba2560308 License: CC BY 3.0 IGO.”
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