The Role of Foreign Aid in Development
This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1997-08-01 edition. Excerpt: ...countries to postpone correcting their economic policies, it may also encourage them to adopt needed economic reforms. Finally, foreign assistance can help strengthen development in countries whose policies do not distort the allocation of resources in the economy? Studies by the World Bank have tended to confirm those broad conclusions. In its 1991 World Development Report, the bank found decreasing rates of retum for its aid projects as the overall policy enviromnent deteriorated along various economic indicators (see Table 9). And the World Bank's Wapenhans Report--an extensive inquiry into the effective implementation of aid projects--noted that its "findings support the need for linking strategy, especially in social sectors, even at the project level, to the overall framework of policies at the country level. Even very well designed projects cannot succeed in a poor policy or regulatory environment."2' Policy Dialogue and Conditionality. In light of the crucial importance of governance and economic policies, foreign aid may be able to help developing comitries make appropriate political and economic reforms. Donors can encourage policy reform through two primaiy means: policy dialogue (donors give aid to create opportunities for policy discussions and interactions with the recipient on key issues such as macroeconomic policy) and conditionality (donors release the aid only if recipients meet certain economic criteria, such as reducing fiscal deficits below certain levels or reducing tar 18. Mankiw, "The Growth of Nations." l9. Krueger, Michalopoulos, and Ruttan, Aid and Development, p. 89. 20. Ibid., pp. 60-62. 21. Portfolio Management Task Force, Effective Implementation: Key to Development Impact...
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