Better Policies from Policy-Selective Aid?
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...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/364041560779299046/Better-Policies-from-Policy-Selective-Aid http://hdl.handle.net/10986/31902 |
| Summary: | 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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