Development Effectiveness: What Does Recent Research Tell Us?

Abstract

This paper provides a critical review of recent research on aid effectiveness and its implications for policies. This review suggests that much of the “conventional wisdom” that underpins current aid policies has a fragile empirical foundation. In particular, it notes that the so-called principle of “selectivity” that has been the guiding principle in allocating aid has little empirical traction and can be a potential instrument for discriminating against capacity-constrained or geographically disadvantaged countries. The paper also suggests that despite the adoption of the Millennium Development Goals and Poverty Reduction Strategy Papers, which should be the fundamental basis for international aid allocation, much of this process is still driven by the selectivity principle with its emphasis on elaborate, but often largely opaque, evaluation of country policies and institutions. This review also offers newer perspectives on issues of conditionality, “good” policies and institutions, and monitoring.