Publication: Better Policies from Policy-Selective Aid?
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Date
2020-06-26
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0258-6770 (print)
1564-698X (online)
1564-698X (online)
Published
2020-06-26
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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.
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“Annen, Kurt; Knack, Stephen. 2020. Better Policies from Policy-Selective Aid?. World Bank Economic Review. © World Bank. http://hdl.handle.net/10986/40831 License: CC BY-NC-ND 3.0 IGO.”
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