Document Library

Key Text The Forgotten States: Aid Volumes and Volatility in Difficult Partnership Countries

Author: V Levin and D Dollar
Date: 2005
Size: 56 pages (274KB)

Access full text: available online

Summary

Is aid efficiently distributed? Do some countries receive less than might be predicted by their need as well as their policy and institutional strength? This paper by the World Bank examines aid patterns between 1992 and 2002. It argues that there is a set of 'forgotten states' with low income and weak institutions, which receive significantly less aid than other recipients, even controlling for the variables discussed in aid effectiveness studies.

During the last decade, the topic of aid effectiveness, and the concomitant issues of absorptive capacity, donor behavior and the effects of aid flows on recipient countries? growth have attracted increasing attention of academics as well as policymakers. Difficult partnership countries (DPCs) are low-income countries with weak policies and institutions, some of the most difficult environments for aid programs, although they are also amongst the poorest countries. Little analysis to date has been performed on patterns of aid in these environments.

When aid flows to DPCs are compared with flows to two other mutually exclusive and dynamic groups: stronger-performing Low Income Countries (LICs) and Middle Income Countries (MICs), it is clear that:

As a group, DPCs do receive less aid than more strongly performing countries. The lower aid in DPCs could be the result of donor allocation decisions that favor stronger performers within low-income countries, conforming with the findings of some aid effectiveness studies.
However, the aid levels in DPCs are significantly lower than would be predicted by these countries? population, poverty and performance. When these factors are controlled for, DPCs still receive 40 percent less aid than suggested by the regression line.
This is primarily due to disproportionately low flows from bilateral donors.
Although DPCs as a group receive less aid than predicted by their characteristics, there are substantial differences within the DPC group. One subgroup of DPCs receives substantially higher aid flows than poverty and policy would predict (the 'aid darlings'), while others receive substantially lower flows (the 'aid orphans').
Post-conflict DPCs receive higher amounts of aid per capita than non-post-conflict DPCs. Within the DPC group, very large countries, very small countries, very poor countries, very badly governed countries, and countries with a small number of donors have more likelihood of becoming 'aid orphans'.
DPCs experience much higher aid volatility than other LICs - almost double.

In aggregate, the finding that DPCs receive disproportionately lower aid flows suggests that donors could modestly increase aid to the group as a whole without challenging the performance basis of aid allocations:

Capacity for additional aid absorption is likely to stem from within the 'aid orphan' group who are currently receiving less than their policies and institutional indicators would predict.
DPCs are by definition very weak capacity countries. In weak capacity countries, the duration needed for any aid-financed program to produce results is likely to be longer than in a country with similar poverty levels but stronger institutions.
Turning the tap of aid on and off frequently may be the wrong way to achieve the results donors are looking for.
Difficult partnership countries have greater development challenges than other aid recipients, as evidenced by their lagging performance on the Millennium Development Goals.
It is important, therefore, for the donor community to look more closely at their aid allocation patterns to these forgotten states.

Access full text: available online

Source: Levin, V. and Dollar, D., 2005, ‘The Forgotten States: Aid Volumes and Volatility in Difficult Partnership Countries’, paper prepared for the DAC Learning and Advisory Process on Difficult Partnership Countries Senior Level Forum, 13th-14th January, London
Author: David Dollar , ddollar@worldbank.org
The World Bank, http://www.worldbank.org