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The Quality of Foreign Aid: Review and New Evidence on Selectivity, Transparency and Results-Based Management Pablo Bandeira 19-22 September 2011, University.

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Presentation on theme: "The Quality of Foreign Aid: Review and New Evidence on Selectivity, Transparency and Results-Based Management Pablo Bandeira 19-22 September 2011, University."— Presentation transcript:

1 The Quality of Foreign Aid: Review and New Evidence on Selectivity, Transparency and Results-Based Management Pablo Bandeira 19-22 September 2011, University of York 13th EADI General Conference pbandeira@ceu.es

2 Foreign aid can help or damage growth and poverty reduction depending on recipients capacity, and form of aid. Towards enhancing positive impacts, two global agreements, new aid data and empirical studies have been recently produced This paper reviews aid quality concepts, data and studies, and constructs new indicators on selectivity, transparency and results-based management Introduction

3 1. Defining Aid quality and the unit of analysis

4 From the two international references on aid effectiveness (PD and AAA) we can define quality dimensions and concepts referred to donor practices: Alignment: support participative national development strategies, use recipients systems when they provide assurance, and provide reliable multi-year commitments. Harmonization: coordination between donors at the country level for planning, funding and evaluating Results-based management: link resources to human development results Good conditionality: conditions must be few, transparent and based upon development results Transparency: publicly disclose detailed and timely information on allocations, results and conditions associated with disbursements. Before (selectivity) or after? Defining aid quality…

5 Most studies take donor and recipient countries as the unit of analysis, but aid is given and received by agents, not by countries. We cannot really state that aid from country A to country B is of any quality, because there are many agents on each side, with varying qualities. We need to differentiate agents as much as possible: national government, subnational governments, multilateral organizations (MO), and civil society organizations (CSO). Defining unit of analysis

6 2. The available aid data and its characteristics

7 Three important worldwide data sources: DAC-OECD AidData Project PD 2008 and 2005 monitoring surveys Besides, researchers have commonly used information on agencies web pages or send them questionnaires Aid data sources

8 DAC-OECD has two databases: DAC annual aggregates: by country Creditor reporting System (CRS): by donor agency and project, including information on channelling organization. AidData Project: based on the CRS, adding more donors and more information on projects. Aid databases

9 PD 2008 and 2005 monitoring surveys: 16 progress indicators, 10 of them referred to donors. Best indicators a priori, since we base aid quality on the PD, but 3 important problems: Data measured by country Specification/data gathering problems on 3 indicators. Representativity: average of 16/26 recipients per donor measured, not randomly, when 151 recipients. Aid databases

10 3. Choosing aid quality indicators

11 Many empirical studies trying to understand how agencies allocate their aid flows. Self-interest, recipient needs, or recipient merits. Several recent empirical studies on donors aid quality: Roodman (2003-2010), Easterly and Pfutze (2008), Birdsall and Kharas (2010), Knack et al (2010). 4 important problems in their indicators: None of them differentiate between agency and country at the recipient level. Most use unrepresentative PD data Most produce rankings based on an overall abstract notion of aid quality: highly sensitive to weightings and little policy meaning. Some use arguable indicators Choosing indicators

12 Therefore, there is an important need of more studies based on indicators that: Differentiate between both donor and recipient agencies Have representative or comprehensive data Identify meaningful quality strengths and weaknesses for each donor Have sufficient universal consensus Choosing indicators

13 4. New indicators on selectivity, transparency and results-based management

14 Goal: see if donors reward/punish recipient governments merits/weaknesses on good governance. Data: AidData Project for aid flows and Kaufman, Kray and Mastruzzi (2009) for recipient governments governance indicators Donors = central governments Differentiate between two type of agents per recipient country: governments and MO/CSO. Selectivity indicators j (GovAid ij x WGI j /10) j GovAid ij S1 i =

15 Proxy of % of aid channelled through governments that is likely to be effective due to adequate governance capacity of the recipient government. Eg: Only 14% of govaid is likely to be effective when given to a country with a WGI score of 1.4 Selectivity indicators j (GovAid ij x WGI j /10) j GovAid ij S1 i = j (100 - |%GovAid ij – (WGI j x 10)|) x TotAid ij ) j TotAid ij S2 i = Proxy of % of total aid given to countries with bad governance indicators that is likely to be correctly channelled. Eg: Total aid is well channelled to a country with score 1.4, if 14% is given to its gov, and 86% to MO and CSO.

16 Selectivity indicators Central Government ofS1 (%)S2 (%)Average S1-S2 (%) Australia342932 Austria115935 Canada216443 Denmark667169 Germany205236 Greece465249 Ireland507764 Italy277149 Japan194934 New Zealand568370 Norway457761 Portugal594150 Spain438062 Switzerland258053 UK266345 US217046 Average 3766 51

17 S1 average (37%): most aid given directly to governments goes to the worst governments S2 average (66%): : however, donors tend to give a higher proportion of aid MO or CSO if governments perform badly It seems that donors first choose recipient countries based on poverty levels, commercial interests, historic linkages and the like, and then do some agent selection based on governance capacities, but still not enough (bad governments are probably receiving too much aid) Selectivity indicators

18 Data source: central government and MO web pages Do they publish: Project appraisal documents? Results matrix within project appraisal documents? Project evaluation documents? Results analysis within project evaluation documents? Transparency and results-based management indicators

19 DonorPublishes Project Appraisal Documents Project documents contain results matrix Publishes Project Evaluation Documents Project Evaluations evaluate results Central governments Australia100 50 Canada0000 Denmark100000 Finland0000 Italy50000 Japan100 Spain0000 UK0000 US0000 Multilateral agencies AfDB100 AsDB100 50 EC0000 FAO0000 IADB50000 UNDP50000 UNICEF0000 WB100

20 5. Conclusions

21 Enhancing the quality of foreign aid is becoming one of the cornerstones of international relations. Empirical studies can help detect areas in which donors need to improve, but need to go beyond countries as the unit of analysis, and use meaningful indicators on which there is consensus and representative data. Applying these ideas, I have constructed indicators on selectivity, transparency and results-based management, which show that: It seems that donors first choose recipient countries based on poverty levels, interests and the like, and then do some agent selection based on governance capacities, but still not enough (bad governments are probably still receiving too much aid) Only the governments of Australia and Japan, and 3 MO (African, Asian and World Banks) measure and publish information on results at the project level. Conclusions

22 ¡Thank you for you attention! pbandeira@ceu.es Pablo Bandeira


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