1. The Development- Friendliness Index: Aid Component Nancy Birdsall President Center for Global Development Based on Birdsall and Roodman (March 6 th ) Joint OECD/DAC Experts’ Seminar on Aid Effectiveness and Selectivity March 10 th, 2003

2. www.cgdev.org2 The Development Friendliness Index: Aid Component Outline Introduction and motivation Design challenges and caveats Aid component methodology Aid score results and discussion

3. www.cgdev.org3 Introduction and Motivation The development friendliness index (DFI) project Components: aid, trade, environment, investment, migration, and security A glance at the overall ranking

4. www.cgdev.org4 Development Friendliness Index: Components and Overall Ranking good score or score >= 6.1 bad score or score <= 2

5. www.cgdev.org5 Development Friendliness Index: Components and Overall Ranking good score or score >= 6.1 bad score or score <= 2

6. www.cgdev.org6 Design Challenges and Caveats Conceptual coherence and precision versus simplicity and transparency Policy effort versus impact Time frame How to “standardize” raw scores The weighting problem

7. www.cgdev.org7 Aid Component - Methodology DAC’s ODA/GDP aid quantity measure modified to reflect two quality concerns: - Tied aid - Selectivity issue

8. www.cgdev.org8 Gross ODA after Tying Discount Example Source: DAC (2001) Million $

9. www.cgdev.org9 Aid Component – Methodology Tying Basis: gross ODA Method: - Tied ODA discounted 20% - Partially untied aid discounted 10% - ODA via multilaterals assumed untied - All technical cooperation assumed fully tied

10. www.cgdev.org10 Aid Component – Methodology Selectivity Basis: Tying-discounted gross ODA, net of principal and interest payments Method: Aid measure discounted by a recipient -specific selectivity weight to reward aid to low-income and good governance countries.

11. www.cgdev.org11 Aid Component - Methodology Notes: - DAC does not net out interest payments from its “net ODA.” - Our measure is labeled : Modified ODA/GDP

12. www.cgdev.org12 Selectivity by Weight: KKZ Governance Score and GDP coef =.57245713, se =.03386514, t = 16.9 Governance composite lgdp per capita -2.251482.37511 -1.47143 1.70112 SLE TZA BDI MWI ETH NER GNB ZMB MLI COG ERI MDG MOZ TCD YEM NGA RWA BFA BEN KEN TJK CAF UGA NPL BTN TGO KHM HTI SEN LAO COM BGD CIV SLB GMB MRT CMR MNG SDN PAK GHA GIN VNM LSO MDA AGO PNG IND NIC BOL UZB HND ARM ZWE GEOKGZ AZE IDN ECU ALB LKA MAR SYR EGY JAM SUR UKR GTM TKM GUY JOR PHL CHN LBN PRY MDV SWZ SLV FJI PER CPV WSM MKD DZA BLZ BGR VEN KAZ IRN PAN DOM GAB COL TUN THA ROM NAM TUR LVA LTU BWA BLR BRA HRV RUS CRI TTO MEX URY POL MYS ZAF CHL MUS EST SVK SAU ARG HUN CZE BRB KWT GRC BHS MLT PRT SVN KOR ESP NZL ISR CYP SGP GBR ITA FRA SWE FIN DEU HKG NLD AUS JPN AUT BEL DNK CAN CHE ISL IRL NOR USA LUX

13. www.cgdev.org13 Selectivity weight -Example In the regression of KKZ governance on log PPP GDP per capita, Tanzania has residual of +0.95--good governance for its GDP/capita Its predicted KKZ in the regression--a proxy for GDP/capita--is -1.22. So its weight=0.95-(-1.22)=2.17. Tanzania scores highest of all, so gets a 1.0 after standardizing weights.

14. www.cgdev.org14 Aid score - sensitivity to assumptions in selectivity policies

15. www.cgdev.org15 Imputed Multilateral Effect Example

16. www.cgdev.org16 What about the U.S.? Effect of Announced ODA increases and Private Contributions 1)Source for private charitable flows USAID (2003) Birdsall-Roodman definition includes: foundations, private and voluntary organizations, and religious congregations USAID definition includes in addition to (2): individual remittances, universities and colleges funding for foreign students, corporations direct contributions, and other U.S. assistance (IMF, Export-Import Bank, etc.)

17. www.cgdev.org17 Aid Component Results: Country Standardized Scores

18. www.cgdev.org18 Discussion Low Scores to: US, Japan, and Italy High Scores to : Denmark, Sweden, and Netherlands