Publication: Better Policies from Policy-Selective Aid?
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2019-06
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2019-06-19
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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.
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“Annen, Kurt; Knack, Stephen. 2019. Better Policies from Policy-Selective Aid?. Policy Research Working Paper;No. 8889. © World Bank. http://hdl.handle.net/10986/31902 License: CC BY 3.0 IGO.”
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