This paper focuses on key ways in which donors can improve the quality of foreign assistance and make it more effective in achieving the Millennium Development Goals (MDGs).
Poverty reduction is now, and quite properly should remain, the primary objective of the World Bank. But, when the World Bank dreams of a world free of poverty—what should it be dreaming? I argue in this essay that the dream should be a bold one, that treats citizens of all nations equally in defining poverty, and that sets a high standard for what eliminating poverty will mean for human well-being.
*REVISED Version May 2007
Recent literature contains many stories of how foreign aid affects economic growth: aid raises growth in countries with good policies, or in countries with difficult economic environments, or mainly outside the tropics, or on average with diminishing returns. The diversity of these results suggests that many are fragile. I test 7 important aid-growth papers for robustness. The 14 tests are minimally arbi-trary, deriving mainly from differences among the studies themselves. This approach investigates the importance of potentially arbitrary specification choices while minimizing arbitrariness in testing choices. All of the results appear fragile, especially to sample expansion.
The Burnside and Dollar (2000) finding that aid raises growth in a good policy environment has had an important influence on policy and academic debates. We conduct a data gathering exercise that updates their data from 1970-93 to 1970-97, as well as filling in missing data for the original period 1970-93. We find that the BD finding is not robust to the use of this additional data. (JEL F350, O230, O400)
In this paper I set out the economic logic for why good global economic governance matters for reducing poverty and inequality and argue that a step towards better global governance would be better representation of developing countries in global and regional financial institutions.
What should the World Bank optimally do with the US$10 to $20 billion it can loan each year? Has it, in fact, done what is optimal? This study suggests a simple framework within which to measure the World Bank against an optimal international public financier for development. It goes on to argue that a careful treatment of the empirical evidence on Bank lending strongly contradicts optimal behavior under different assumptions. The evidence, in fact, rejects any notion that the Bank has substituted for private capital or that it has successfully catalyzed private development finance.
Private Sector Involvement in Financial Crisis Resolution: Definition, Measurement, and Implementation - Working Paper 18
Public policy on financial crises in emerging markets has implicitly been grounded in economic theory calling for lender-of-last-resort intervention when the country is solvent, and on theory recognizing that reputational damage is the quasi-collateral enabling lending to sovereigns with no physical collateral. The call for Private Sector Involvement — PSI — in the financing of crisis resolution has appropriately arisen from the desire for fairness as well as for successful outcomes. This paper identifies an array of PSI modalities and argues that in each crisis case the most voluntary type consistent with the circumstances should be chosen, to speed return to market access.
The paper addresses three key issues raised by the G-7 in its proposals to reform the multilateral banks, in 2001. One, the restructuring of IDA with a part of its lending in the form of grants rather than loans. Two, the harmonization of procedures, policies and overlapping mandates among MDBs. And three, the volume of support by MDBs for Global Public Goods (GPGs) and the rankings and priorities among them.
What did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans - Working Paper 11
One feature of adjustment loans that has been often overlooked in their evaluation is their frequent repetition to the same country, with such extremes as the 30 IMF and World Bank adjustment loans to Argentina over 1980-99 or the 26 adjustment loans to Cote d'Ivoire and Ghana. Repetition changes the nature of the selection problem, with the possible implication that new loans had to be given because earlier loans were not effective. This study finds that while there were relative successes and failures, none of the top 20 recipients of adjustment lending over 1980-99 were able to achieve reasonable growth and contain all policy distortions. The findings of this paper are in line with the foreign aid literature that shows that aid does not discriminate between good and bad policies. There's a big difference between structural adjustment lending and structural adjustment policies.
The IMF uses its well-known "financial programming" model to derive monetary and fiscal programs to achieve desired macroeconomic targets in countries undergoing crises or receiving debt relief. Financial programming is based on monetary, balance of payments, and fiscal accounting identities. This paper subjects the identity-based framework to a variety of tests. All of the identities contain large statistical discrepancies, which weakens the case for them as a "consistency check." In addition, the financial programming approach is flawed because it does not take into account the endogeneity of virtually all the variables in each macroeconomic identity, the instability of its simple behavioral assumptions, and the large statistical discrepancies in all the identities. Accounting identities do not a macro model make.
In this paper we argue that neither the level nor the change in a country's trade/GDP ratio can be taken as an indication of the "openness" of a country's trade policy. In particular, we examine the ways in which terms of trade shifts have affected trade/GDP ratio over the past two decades, and find that the empirical evidence offered by the existing literature overstates the importance of trade policy in economic growth.
This study brings readers up to date on the complicated and controversial subject of debt relief for the poorest countries of the world.
Over the last several years, the United States and other major donor countries have supported a historic initiative to write down the official debts of a group of heavily indebted poor countries, or HIPCs. Donor countries had two primary goals in supporting debt relief: to reduce countries' debt burdens to levels that would allow them to achieve sustainable growth; and to promote a new way of assisting poor countries focused on home-grown poverty alleviation and human development. While the current "enhanced HIPC" program of debt relief is more ambitious than any previous initiative, it will fall short of meeting these goals. We propose expanding the HIPC program to include all low-income countries and increasing the resources dedicated to debt relief. Because debt relief will still only be a first step, we also recommend reforms of the current "aid architecture" that will make debt more predictably sustainable, make aid more efficient, and help recipient countries graduate from aid dependence.
The tragedy of foreign aid is not that it didn't work; it was never really tried. A group of well-meaning national and international bureaucracies dispensed foreign aid under conditions in which bureaucracy does not work well. The hostile environment under which such aid agencies functioned induced them to organize a cartel that increased inefficiency and reduced effective supply of development services, frustrating the good intentions and dedication of development professionals. The cartel of good intentions allows rich country politicians to feel that they are doing all in their power to help the world's poor, supports rich nations' foreign policy goals, preserves a panoply of large national and international institutions, and provides resources to poor country politicians with which to buy political support; in short, foreign aid works for everyone except for those whom it was intended to help.