Working Paper: CEPR ID: DP4971
Authors: Ravi Kanbur
Abstract: This paper develops a modest proposal for introducing final outcome indicators in the IDA aid allocation formula. It starts with a review of the current formula and the rationale for it. It is argued that this formula, and in particular the Country Policy and Institutional Assessment (CPIA) part of it, implicitly relies too heavily on a uniform model of what works in development policy. Even if this model were valid ?on average?, the variations around the average make it an unreliable sole guide to the country-specific productivity of aid in achieving the final objectives of development. Rather, it is argued that changes in the actual outcomes on these final objectives could also be used as part of the allocation formula. A number of conceptual and operational objections to this position are considered and debated. The paper concludes that there is much to be gained by taking small steps in the direction of introducing outcome variables in the IDA formula, and assessing the experience of doing so in a few years' time.
Keywords: IDA; performance-based aid allocation
JEL Codes: O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Current IDA allocation formula (F35) | Productivity of aid (F35) |
| Incorporating actual development outcome indicators (O19) | Better aid productivity (F35) |
| Rate of improvement in outcomes (C41) | Allocation of aid (F35) |