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Better Policies from Policy-Selective Aid ?

Kurt Annen and Stephen Knack

No 8889, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Global Environment; Coastal and Marine Resources; Energy and Natural Resources; International Trade and Trade Rules; Inequality; Social Protections&Assistance (search for similar items in EconPapers)
Date: 2019-06-17
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Citations: View citations in EconPapers (5)

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