Foreign Aid Transaction Costs: What Are They and When Are They Minimised?

‘Transaction costs’ are commonly referred to in the recent literature on aid effectiveness. Aid transaction costs, however, have been neither consistently defined nor measured. This article defines aid transaction costs as all the economic costs associated with aid management that add no value to aid delivery. This enables the ‘net’ transaction costs that should be minimised to be identified. An analytical framework is then developed for assessing these costs. This allows the effectiveness of different aid modalities to be compared, according to the characteristics of the aid transaction. The article shows that the choice of aid modality should depend on these characteristics and, therefore, that the minimisation of transaction costs should not be an end in itself.     

Making international aid effective: An agenda for aligning aid to social business

In the context of heightened interest in social business and a renewed focus on the performance of international aid, this article explores the role and place of aid in addressing poverty in relation to the rapidly growing social business regime. Research on the subject is surprisingly limited. The article begins by operationalizing the key concepts, and developing a conceptual framework by exploring the possible nexus points between aid alignment and social business. It then addresses a number of key dimensions of aid; notably, a comparative account of possible aid investment in social business vis‐à‐vis conventional projects and private sector enterprises; an examination of the realities on the ground of the social business projects; and policy implications of the study together with some recommendations.     

Do Aid Donors Specialize and Coordinate within Recipient Countries? The case of Malawi

Acknowledging that aid proliferation and a lack of coordination impair aid effectiveness, donors have repeatedly promised to specialize and better coordinate their aid activities, notably in the Paris Declaration of 2005. We exploit data on the exact location of aid projects in Malawi to assess whether the country's bilateral and multilateral donors have acted accordingly at the district and sector level. We do not find compelling evidence for increased aid specialization after the Paris Declaration, and the regional division of labour among donors may even have deteriorated. Our within‐country evidence thus broadly corroborates what previous studies have found at the national level of recipient countries.     

Performance‐Based Aid: Why It Will Probably Not Meet Its Promises

Performance‐based aid (PBA) is increasingly advocated as a way to improve the effectiveness of development aid by resolving incentive issues inherent in aid relationships, and some donors use it together with performance‐based financing arrangements within partner countries. Expectations from PBA are high, but, while its rationale may look appealing, it is based on a restrictive model and is flawed when taking account of the real‐world context. A number of problems associated with PBA have already been observed, and its appropriateness to provide incentives all along the chain from recipient governments to those who are supposed to produce results is questionable. Thus believing that PBA can have a mechanistic trickle‐down incentive effect seems illusory.     

Losing concentration? Lessons from a Swedish aid policy reform

Sweden is one of the donor countries that signed up for the Paris Agenda, which among other things advocated reducing aid dispersion. It also adopted its own geographical concentration policy in 2007. My empirical analysis shows that Sweden managed to achieve this goal only for two years following the reform and that this was followed by backsliding. Moreover, its current aid policy framework barely mentions the topic. I argue that a major reason was the failure to institutionalize the policy. This left it vulnerable to the regular politics of aid, which tend to generate both geographic and thematic spread. Reduced peer pressure, as the international community has moved away from the Paris Agenda, might also have contributed.     

Applied ethics and allocation of foreign aid: disparity in pretensions and practice

We explore the applied ethics of development aid and humanitarian assistance, and juxtapose these with claimed objectives and factors that influence the choice of recipients. Despite some diversity among donors, ethical considerations appear not to be a prominent factor for allocation of aid. Although recipients’ need is not entirely ignored, donors’ self‐interest and herd behaviour, and recipients’ merits and voting in the United Nations, play crucial roles in allocation decisions. Likely to be shunned are complex emergencies and fragile states, the overlapping settings for action of development and humanitarian aid. Donors should take to heart and put into practice that allocation of aid is an ethical endeavour that should rest on proper needs assessment, established objectives and adopted agreements.     

Transition and Foreign Aid Policies in the Visegrád Countries: A Path Dependant Approach

The paper argues that the current emerging international development policies of the Visegrád (V4) countries are heavily influenced by the certain aspects of the Communist past and the transition process. Due to these influences, the V4 countries have difficulties in adapting the foreign aid practices of Western donors and this leads to the emergence of a unique Central and Eastern European development cooperation model. As an analytical background, the paper builds on the path dependency theory of transition. A certain degree of path dependence is clearly visible in V4 foreign aid policies, and the paper analyses some aspects of this phenomenon: how these new emerging foreign aid donors select their partner countries, how much they spend on aid, how they formulate their aid delivery policies and institutions and what role the non-state actors play. The main conclusions of the paper are that the legacies of the Communist past have a clear influence and the V4 countries still have a long way to go in adapting their aid policies to international requirements.

Paris in Bogotá: The Aid Effectiveness Agenda and Aid Relations in Colombia

This article uses an aid‐relationships perspective to explore the application of the Paris Declaration on Aid Effectiveness in Colombia. It argues that aid donors were subjected to an attempt to push them (back) into a technocratic corner, and that social actors' advocacy outcomes were put under threat. Both are worrying developments in a politically complex context marked by internal armed conflict and human‐rights abuses. Analysis of the Colombia case offers some useful insights into applying the Paris Declaration, and other global aid‐policy frameworks, to diverse settings.     

Paddling on One Side of the Canoe? The Changing Nature of New Zealand's Development Assistance Programme

New Zealand's aid policy has undergone a revolution under the National Party government elected in 2008. Prior to this, NZAID, a semi‐autonomous unit, had evolved to manage aid in line with internationally agreed principles. Under the new government, NZAID was reincorporated into the Ministry of Foreign Affairs and Trade, its focus was shifted from poverty reduction to economic growth, and its programme was aligned with foreign policy. This article aims to provide an overview of the shifts in New Zealand's aid policy over four decades, to explore the relationship between the global aid regime and national practice, and to analyse the influence of politics, and of key individuals, in setting the direction of aid policy.     

Follow the leader! The peer effect in aid supply decisions

This study assesses the existence of imitative behaviour among donors in terms of their aid supply. The urgency in addressing this subject is motivated by an increasing degree of aid volatility and unpredictability which may be linked to this imitative behaviour. Our results highlight that while any connection among donor peers is a potential channel for the transmission of aid volatility, the extent of such volatility decreases significantly in the presence of established imitative behaviour. This result suggests that the promotion of donor imitative behaviour would contribute to containing the current and growing trend of volatility in aid supply.     

Assessing the effects of monetized food aid on: reproductive behavior in rural Honduras

This article describes the methodology and findings of a study undertaken to assess whether the monetization of non-emergency food aid has adversely influenced national family planning program efforts in Honduras. Due to time constraints, an ex-post, non-equivalent group design was the strongest feasible study design. In the study, women receiving food aid in the form of cash coupons were compared with women receiving food rations and a third group of comparable women who were not food aid recipients on three types of outcomes: recent fertility, fertility preferences, and contraceptive use (both current and intended). A ‘sample selection’ model was used in the analysis to control for unobserved differences between comparison groups. No compelling evidence for either adverse demand- or supply-side effects was observed.     

Can the New Deal solve the old problem of aid orphans and darlings? Aid effectiveness in fragile states

The New Deal for Engagement in Fragile States marks an important ideological shift in development co‐operation. Despite this progress, no practical response has been found to the problem of aid co‐ordination. This article traces the issue of aid allocation and highlights lessons from the ‘aid orphan’ and ‘aid darling’ debate. It examines the significant, yet under‐reported, policy process of the New Deal. It argues that deeper engagement with the concept of trust, and renewed focus on the political elements of the agreement, should be key priorities for the International Dialogue on Peacebuilding and Statebuilding.     

Easy to Declare,Difficult to Implement: The Disconnect Between the Aspirations of the Paris Declaration and Donor Practice in Nigeria

The arguments in academia over the effectiveness of foreign aid fall into two broad categories: those grounded in political economy and those focused on donor conduct and aid effectiveness. There have been policy attempts within the donor community to reconcile them, including the 2005 Paris Declaration on Aid Effectiveness. This article examines the key features of foreign aid to Nigeria between 1999 and 2007. Using the Declaration as a framework, it looks for ways of making foreign aid in Nigeria more effective.     

And yet they thrive!—Regaining the relevance of a transparency system

Over the past decade, a host of donor organizations implemented transparency systems to make international development aid more transparent to the public. These initiatives have met with little public interest, but their proliferation and development show no sign of diminishing. This article shows how internal importance to the political system, fueled by formal rankings and the exhibition of transparency systems as a flagship initiative, can replace relevance to the public as a driving force for sustainable development. The article concludes by discussing the possibility of a future development where transparency systems finally do connect with user groups, such as citizens of both donor and recipient countries, and gain a relevance even beyond original intentions.