Sunday, August 17, 2008

Aid effectiveness

I have written a few times about the problems and the (in)effectiveness of development aid. An interesting study the World Bank's Private Sector Development Blog pointed me to an interesting new study by on the subject. The study looks at the impact of aid from oil-rich muslim countries to poorer majority muslim countries. The results are interesting because they isolate the effect of aid from the selectiveness of Western donors: the tendency to support only the poorest or the tendency to support countries that are already growing fast.

The conclusion is:

The petro-aid was largely consumed, nearly all in imports. It did not lead to a measurable increase in growth, prices, or an appreciation of the exchange rate. Imported goods during the aid surge shifted away from capital goods and towards non-capital goods, and aid crowded out domestic savings. A significant share of the aid fled the country in unaccounted transactions.

The study was done by E. Werker et al. is available here.

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