Brookings: Series - Working Papers

The Political Economy of Urban Poverty in Developing Countries: Theories, Issues, and an Agenda for Research

Raj M. Desai — Wed, 30 Jun 2010 00:00:00 -0400

Abstract

The implications of urban development for overall economic prosperity are well known. Employment, housing, policing, infrastructure and social policies in cities have been shaped and institutionalized through a complex set of interactions between various urban interests, public officials, and institutions. In advanced industrial countries, for example, the rise of influential coalitions with the urban working class at the center was responsible for the proliferation of social protection in the 19th and 20th centuries. Consequently, a great deal is known about the dynamics of urban political mobilization and behavior in richer countries, and of participation among the urban poor. In the cities of the developing world, however, there is far less information available regarding these issues. I survey some theoretical foundations for understanding the political-economy of urban poverty before examining several pathologies of political life for the urban poor in the developing world. I focus on some aspects of the city-dweller’s political agency—or the lack thereof—that limit the ability of the urban poor to engage in collective action, to participate in decision-making, to form effective organizations, and to resist predatory behavior by officialdom. I then examine some areas where further research is needed, including the political-economic bases for mobilization, the prospects for pro-poor urban social policy, conditions determining the effectiveness of delegation, and of membership organizations for the urban poor.

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Raj M. Desai

Urban Poverty in Developing Countries: A Scoping Study for Future Research

Johannes F. Linn — Tue, 29 Jun 2010 00:00:00 -0400

Abstract

This paper is a scoping exercise to explore options for research on urban poverty in developing countries. Based on a review of the literature and experience, the first part of the paper reviews the changing nature of the urban poverty agenda over the last 30 years by comparing today’s issues with those addressed in World Development Report 1979. The issues are categorized by new issues, old issues still relevant, and forgotten issues; and are grouped by challenges, instruments, analytical and planning tools, data and benchmarks, regions/countries/cities, and institutions. The conclusion of this part of the paper is that while some of the old issues and prescriptions are still valid today, and some important ones apparently forgotten, there are many new issues and approaches that need now be considered. The second part of the paper takes the large array of issues identified in the first section and selects 10 for more detailed consideration as part of a menu of potential high-priority research initiatives on urban poverty. They include slums, employment, small- and medium-size cities, and women/children/youth (from among the challenges); comprehensive slum upgrading programs, conditional cash transfer programs, and incentive-based approaches (from among instruments); happiness and life satisfaction research approaches, impact evaluation, and strategic planning tools (from among analytical and planning tools). Among regions, countries and cities, Africa is recommended as a regional focus, China and India for country studies, and Bogota (or possibly other large cities) for specific city studies.

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Johannes F. Linn

Municipal Finance of Urban Infrastructure: Knowns and Unknowns

James Alm — Mon, 31 May 2010 00:00:00 -0400

Introduction

Various trends, including an increasing emphasis on fiscal decentralization; political democratization in many areas; globalization and the financial liberalization that often accompanies it; growing demands for urban services as urbanization continues in major cities around the world; all argue compellingly for finding ways to help municipalities finance largescale infrastructure. Improved urban infrastructure, for water supply, sanitation, urban transportation and solid waste management is widely believed essential in encouraging and facilitating economic growth. Evidence indicates that those countries most successful in sustaining high growth supported their cities with transformative investments to improve urban infrastructure that could accommodate rapid population growth in major economic centers. This evidence suggests that infrastructure has a strong “supplyside” orientation and in practice, it is the effects of infrastructure on “supply” that are most often emphasized. There is also a strong “demand-side” aspect: individuals and businesses value the services that flow from the stock of infrastructure facilities and these demands should be (but are often not) considered in determining the appropriate level of infrastructure investment. In addition to the potential supply-and-demand-side impacts on economic growth, the services of infrastructure also play a significant role in the distribution of income.

Although data are often limited, the extent of the infrastructure “gap”—or the amount of additional infrastructure spending that is needed to provide basic services—is enormous. See Box 1 for a discussion of the quality of infrastructure in Kenya. The experience there is not an isolated one.

Urban infrastructure finance has multiple dimensions. This paper focuses on a limited number of these dimensions:

Finance for major infrastructure improvements in major economic centers;
Finance for expansion of basic municipal services in secondary cities and towns; and
Intergovernmental systems for financing investments with impacts beyond jurisdictional limits.

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James Alm

Land Markets, Government Interventions, and Housing Affordability

Alain Bertaud — Wed, 26 May 2010 14:36:00 -0400

Introduction

Urban population growth and economic growth require cities to expand into the agricultural land on their periphery. How much land is required for this extension? How much planning and direct intervention by the government are needed, who should pay for extending services, and how should the costs be recovered? And how can we ensure that every participant in the urban economy has access to urban land?

Although these questions are not new and have probably been asked since the creation of the first cities, we are still struggling to find satisfactory answers. The solutions found for the problems posed by city expansion vary from city to city, but nowhere has a consensus appeared on what constitutes the best practices.

Failure to provide enough land for urban expansion results in high housing prices, exacerbates the creation of high-density slums, and generally lowers urban productivity. Conversely, a number of critics argue that cities are expanding too rapidly into valuable agricultural areas and are using land inefficiently.

The proper role of government in urban land development is often difficult to establish. In other sectors of the economy, the government’s role is mostly limited to that of a regulator. However, in matters of land development, the government often takes a much more active role as a de facto developer because many public goods and the primary infrastructure network cannot easily be built privately. Even in strongly established and successful market economies, like South Korea, Japan, and Singapore, the direct intervention of the state in land development contrasts with its laissez-faire approach in other sectors of the economy. In Asia, the contrast in the approaches used in the cities of China and India illustrates the dilemma of these two opposite views: too little land areas developed in the case of India, and too much and the wrong kind in China, according to some critics.

The way urban land is developed in each country is intimately linked to its culture and history. Even if a country’s way of developing urban land was found to be “optimum,” assuming that this optimum could be defined, it is unlikely that the method could be transferred to other countries because of cultural incompatibility and different historical circumstances.

What is required, therefore, is not to identify an “optimum model” of land development to be copied but to develop for each city (1) an analytical method to identify the shortcomings of current land delivery mechanisms, (2) a set of land development objectives (equity, affordability, transportation efficiency, etc.), and (3) a reform path to modify the existing land delivery system to meet the development objectives.

The methodology proposed looking at the land delivery system from two angles: (1) the consumption of land by income groups and (2) the spatial distribution of land consumption. These two aspects, the distributive and the spatial, should never be separated. Too many governments try to solve the problem of land distribution by ignoring the spatial dimension. Increasing the land consumption of poor people by developing cheap land in faraway suburbs is not an acceptable trade-off.

This report is divided into five sections. The first section provides a brief historical perspective on the evolution of land and housing policy from the building technology focus of the 1960s to the current emphasis on land supply reforms. It points out the gap between the trends in the land economics literature and actual policies as implemented by governments. The next section proposes an analytical framework for analyzing the land delivery system from a distribution and spatial point of view and compares land consumption between countries and within cities. The third section analyzes the way government intervenes indirectly in the land market through regulations and infrastructure investments. Often apparently innocuous regulations tend to force an increase in land consumption and at the same time restrict land supply. Transportation infrastructure is often designed more to alleviate traffic than to open new land for development. The fourth section analyzes the current various land delivery systems in India, South Korea, China, and Thailand, within the framework developed in the first two sections. The last section proposes an agenda for action; first, by proposing a methodology for assessing how the current delivery system in a given city meets the different objectives of equity and transportation efficiency; and second, by establishing a framework for future research.

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Alain Bertaud

Scaling-Up Early Child Development in Cuba

Alfredo R. Tinajero — Tue, 27 Apr 2010 15:32:00 -0400

Introduction

There are two distinct stages in Cuba’s history with regard to child development services. In the first stage, before the Revolution, health services were quite limited; there were only 300 children’s health centers in the entire country, and the child mortality rate was 54 per 1,000 live births. In the second stage, following the Revolution, health services became universal, with rates of child mortality and low birth weight comparable to those in developed countries and 99.8 percent of children under the age of six attending early education programs.

Cuba’s advancement with respect to child development services is a result of the ideology, culture, and values that have oriented and driven the country’s social policies in recent decades. Among the key events in that historic processwere the creation of the National Health System (1960), the National Literacy Campaign (1961), the U.S. embargo and the Cuba-USSR trade agreement (1962), the creation of community polyclinics (1976), the creation of the Early Education System (1980), the introduction of the family doctor concept (1984), the fall of the socialist bloc and the beginning of a period of economic crisis (1989), and the launch of the social-educational program Educa a Tu Hijo [Educate Your Child] (1992). Other important changes also took place, related to university education and teaching institutes, reform of the health and education sectors, the decentralization of the government, and the contributions of Círculos Infantiles (day care centers) and scientific research centers.

The fall of the socialist bloc in Eastern Europe in 1989 and the disintegration of the Soviet Union in 1991 sparked an acute economic crisis in Cuba known as the “período especial en tiempos de paz [special period in times of peace].” With the tightening of the U.S. embargo in 1992, the crisis became even more acute. Imports and exports fell 20 to 25 percent between 1989 and 1993, and the fiscal balance as a percentage of gross domestic product (fiscal balance/GDP) fell 33.5 percent (Mesa Lago, 2005).

The tightening of the embargo and the deepening of the crisis interrupted the major advances made by Cuba in health care and education. Food and medicine became scarce, and health and education services deteriorated. Between 1989 and 1993, per capita daily caloric intake fell from 3,130 to 1,823 kcal (kilocalories) a day and daily protein intake fell from 76 to 46 grams, causing a severe drop in average weight for both children and adults. Child morbidity and mortality, mortality in children under the age of five, and birth weight indicators all deteriorated.

The Cuban government’s response was consistent with its socialist principles. Despite the economic difficulties of the special period, the Cuban government increased the percentage of the gross domestic product allocated for health and education, expanding disease prevention and health care programs and establishing universal preschool education with the launch of the Educate Your Child Program. Through that and other initiatives, Cuba was able not only to reduce the initial impact of the crisis on child development but also to improve all basic child development indicators throughout the 1990s. In short, the special period was a time of crisis for Cubans and its economic consequences could still be seen in 2003, but the period also saw progress in the implementation of social policies and programs for children.

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Alfredo R. Tinajero

Scaling-Up Early Child Development in South Africa

Linda Biersteker — Tue, 27 Apr 2010 16:04:00 -0400

Introduction

This case study tracks the development of the policy environment leading to the introduction of Grade R, the Reception Year for five year olds, in the years of transition to democracy in South Africa and its subsequent rollout towards universal provision originally set for 2010/11 but recently revised to 2014. It includes a reflection on what, in the Grade R scaleup process, would inform the current rollout of a national plan for integrated servicing for children aged zero to four years.

The paper was written by Linda Biersteker from the Early Learning Resource Unit, an ECD NGO specializing in policy, advocacy and programme development located in Cape Town, South Africa. The South African case study is based on a survey of published and grey literature, the author’s own long experience as a role player and researcher for many of the processes described in this report, as well as interviews with several key stakeholders in the ECD sector in South Africa. These stakeholders have for the most part, not been identified in the text for ethical considerations.

Key informants included:

A senior education specialist in the National Policy Investigation Process
An academic/activist involved in drafting the National Programme of Action for Children
Leaders of the two major civil society bodies for ECD
Five national and provincial education department staff (past and present)
Members from the departmental review task team for Grade R
Researchers involved in Grade R research, and
An informant involved with early ECD policy formulation through the political process.

This case study is organised into seven sections. The first provides an overview of the context of ECD in South Africa, starting with key indicators of child status, and then outlining public sector institutions and civil society involvement in ECD, the policy environment and public programmes in support of young children, and how these are going to scale (or “massifying,” which is the current terminology). In the second section, the components of the Grade R intervention are described - its historical roots, the piloting phase, and the preparation for White Paper 5, which provides for rollout. The third section provides an assessment of the factors that led to the adoption of Grade R as part of the formal education system in South Africa, and the contribution of government and civil society to that. It also examines the funding mechanisms used for the start-up of this national programme. The fourth section focuses on requirements for the scaleup to universal provision, including governance, provisioning and capacity building for implementation, as well as advocacy trends in the scale-up period. In the fifth section, evaluations of progress towards universal Grade R provision at an acceptable level of quality are considered, as well as the probability that Grade R will be sustainable. The critical issues for mass expansion of Grade R are analysed next, and lessons learned from this are considered in relation to the currently developing national plan for ECD services for younger children. The final section contains recommendations for the next steps in the scale-up of Grade R and some preliminary recommendations for the scaling of services for children zero to four years.

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Linda Biersteker

External Assistance for Urban Development: A Scoping Study for Further Research

Homi Kharas, Joshua Hermias and Laurence Chandy — Tue, 16 Mar 2010 15:48:00 -0400

Introduction

The World Development Report 2009: Reshaping Economic Geography (World Bank, 2008) describes an estimated billion slum dwellers prevailing in the developing world’s cities—a reminder that cities are central to efforts in tackling poverty. The pervasive effects of poverty, illiteracy and mortality in urban slums have long been recognized (World Bank, 1979). However, the ongoing process of urbanization has put this reality into sharper focus; the share of the world’s poor inhabiting urban areas is expected to reach 50 percent by 2030 (Ravallion et al., 2007). United Nations Millennium Development Goal (MDG) 7 responds to this problem by calling for “Cities Without Slums,” and setting a target “by 2020, to have achieved a significant improvement in the lives of 100 million slum dwellers.” Yet the latest evidence suggests there are 100 million more slum dwellers than in 1990 as rapid urbanization offsets modest progress in improving the lives of those already in cities.

The World Development Report also identifies cities as being vital to economic growth. Cities are recognized for their capacity to provide scale economies, efficiencies in logistics and in the provision of public services, dense labor markets that foster training and skills acquisition, innovation and creativity, diversification of production, lower environmental footprint through densification, and ultimately greater freedom for the individuals who inhabit them. But cities do not provide these benefits automatically, or for free. City management is a complex undertaking of institutional development and governance, planning, partnerships and consultations with the myriad stakeholders within cities, and considerable amounts of financing. When this management is found wanting, the many benefits of cities are never fulfilled. Indeed cities may have an equal capacity to generate social problems as social benefits. Analysis of developing country cities indicates that neither policy frameworks nor infrastructural investments have kept up with urban growth, that the wrong choices with long-term consequences are being made, that lessons from city development are being ignored, and that as a result, cities are developing with problems ranging from corruption to a degraded environment (Cities Alliance, 2006).

That cities can rightfully claim to provide a nexus between poverty and economic growth suggests that the urban development agenda would be a natural draw for the international development community. There is certainly widespread agreement about the need for action. There is advocacy on the modalities through which assistance can be made—namely via policy support and investments. There are a number of international organizations dedicated solely to promoting urban development. Yet to the contrary, there is a sense that urban development is losing priority for donors, that funding is declining, strategies are not acted upon, and that new approaches are needed (International Housing Coalition, 2008).

This paper reviews what has been happening with external assistance for urban development. First, the paper documents the stagnation in the share of aid going into urban projects and programs. It then documents what has been learned from experiences in urban aid and how strategies have evolved.

Next, the paper places urban development in the broader context of changes in the global aid architecture. It suggests that trends to improve aid effectiveness—a poverty focus, an aversion to risk, local ownership and managing for results—have tended to move in a different direction from the realities and constraints of urban interventions, making it harder for advocates of urban development to make their case heard. Donors who are trying to discipline their activities by applying broad principles of effective aid are likely to be put off supporting urban development by these apparent inconsistencies.

The opportunity for the urban sector appears to lie in its rich experiences with partnerships. The paper analyzes partnerships between donors and other stakeholders in urban interventions and suggests there could be considerable learning for the urban sector from past successes and failures. It puts forward an analytical framework to allow a comparison of different partnership approaches.

Lastly, the paper concludes with areas for research that need to be explored if urban development is to gain greater prominence in the international donor community.

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Homi Kharas
Joshua Hermias
Laurence Chandy

Case Study on Aid Effectiveness in Tajikistan

Firuz Kataev, Matin Kholmatov and Rustam Aminjanov — Wed, 14 Oct 2009 12:00:00 -0400

Abstract

This case study aims at presenting Tajikistan's perspective of, experiences with, and challenges to foreign aid. The objective of the study is to raise awareness about different dimensions of aid fragmentation, volatility and associated costs to help define the way to better coordinate official development assistance and private aid flows in Tajikistan. This study is targeted for development practitioners, government officials and all development partners focusing on aid effectiveness.

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Firuz Kataev
Matin Kholmatov
Rustam Aminjanov

Do Philanthropic Citizens Behave Like Governments?

Homi Kharas and Raj M. Desai — Tue, 06 Oct 2009 12:00:00 -0400

Abstract

Until recently, most aid from rich to poor countries was transmitted through official bilateral and multilateral channels. But the rapid growth in private development aid from foundations, charities, and philanthropic individuals raises a host of questions regarding the allocation of aid and its selectivity across recipient countries. We analyze determinants of the supply of private aid from two large internet-based non-profit organizations that bundle contributions from individuals and transfer them as grants or loans to developing countries: GlobalGiving and Kiva. We compare the allocation of funds from these organizations to official development assistance. We find that the selectivity of private aid is less oriented toward country-specific factors, and more toward frontline projects and individuals in developing nations. Survival analysis examining the funding rate of projects on these two Web sites confirms the lower relevance of country-specific characteristics and risks, suggesting that philanthropic individuals behave unlike official aid donors. This indicates that private aid and official aid are complementary: official aid supports countries, private aid supports people. With different preferences, formal coordination between these different donors may not be needed. Instead, each needs to understand when and how it can partner with the other to meet differing objectives.

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Quality and Coordination of Official Development Aid in Pakistan

Abdul Malik — Fri, 21 Aug 2009 12:00:00 -0400

Introduction

Pakistan has historically received large volumes of aid but it has also faced an increasingly difficult task of aid coordination. In 2007, Pakistan received more than U.S.$2.2 billion in Official Development Assistance (ODA), ranking the country as the sixth largest recipient of official aid in the world. This overall sum, however, came from diverse sources in an erratic fashion and was being spent on many different activities, often through a combination of budgetary and non-budgetary arrangements, thus leading to a complex task of coordination. This study investigates these various aspects of aid composition, fragmentation, and volatility as key measures of aid quality and discusses their implication for the coordination and effectiveness of aid.

In this study, the composition of aid—aid mix—refers to the patterns of aid disbursement through different channels (e.g. food assistance, technical assistance) and modalities (e.g. grants, development loans). The aid mix is an important determinant of aid effectiveness because some forms of aid, such as food aid and technical assistance, are generally considered to be less effective than others. Such non-monetized forms also reduce the amount that is actually available to the recipient country to spend on projects and programs.

The fragmentation of aid explores the extent to which aid received by a country is atomized among many different donors and is spent on various projects across different sectors, thus leading to the proliferation of many small-sized donor assisted activities on the ground. High fragmentation of aid generally implies higher transaction costs, coordination failures, and loss of efficiency for both donors and aid recipients. Similarly, aid volatility—the extent to which aid flows are steady, hence more predictable—affects the ability of the recipients to bring quality and long-term orientation in their planning and spending practices.

These three aspects of aid quality—the composition of aid, its fragmentation and volatility—are explored in the following section. The assessment of aid quality is followed by a presentation of selected case studies that highlight current and past efforts of different aid players in Pakistan to manage the issues emanating from disjointed and unstable aid on the ground. The penultimate section presents a brief overview of overall coordination structures and efforts at the country level. The conclusion summarizes key insights that emerge from the study.

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Abdul Malik

Aid Coordination on the Ground: Are Joint Country Assistance Strategies the Answer?

Johannes F. Linn — Wed, 22 Jul 2009 17:30:00 -0400

Introduction

Fragmentation in aid architecture and aid delivery is a well-recognized challenge. The question of what to do about fragmentation remains puzzling with no obvious answers. The Paris Declaration on Aid Effectiveness represents an effort by donor and recipient governments to harmonize their cooperation in a comprehensive manner, with guidelines and targets that aim to improve the effectiveness of aid.

One of the aspects not addressed in the Paris Declaration is how a comprehensive approach to aid coordination at the international level would be implemented on the ground at the country level. The Paris Declaration aims to improve specific modalities of cooperation (such as the use of country systems for procurement and financial management, joint donor missions, the elimination of project implementation units, and the increase in recipient government ownership of programs, etc.), but the Declaration provides little guidance on how donors and recipient governments would plan and implement improved cooperation at the country level to effectively deploy these modalities.

One way to respond systematically and comprehensively to the agreements of the Paris Declaration at the country level is for donors and recipient governments to prepare joint country assistance strategies. While this is not explicitly envisaged or mandated in the Paris Declaration, donor teams and recipient governments have come together in at least 12 countries to prepare joint strategies for a better coordinated and harmonized aid delivery and use. They have done this generally without much support from their headquarters or from OECD DAC experts and without the benefit of a systematic evaluation of the growing body of experience with the preparation and the implementation of joint country strategies.

The purpose of this paper is to report on and draw lessons from the experience with the preparation and implementation of joint country assistance strategies. The analysis draws on two sources of information: It reflects the lessons from the author’s personal involvement as a facilitator in the preparation of a joint country assistance strategy in Tajikistan. While such direct association as a “participant observer” brings with it risks of possible biases in interpretation, it has the great advantage of close, first-hand observation. Since the Tajikistan process was not yet completed at the time of writing this paper, the descriptions and conclusions from this case study can only be seen as preliminary. Second, the paper draws on a desk review of available documentation of country experiences elsewhere in the world, much of it informal and qualitative. No claim to completeness or statistical significance of conclusions can be made. Furthermore, the joint country assistance strategy process, as it is implemented on the ground, does not currently follow any standard format or approach, since there is no explicit agreement (and quite some variance) on (1) the main purpose and objectives of joint strategy process, (2) what are the necessary elements/components, or (3) even whose instrument it should be (donors or partner country government).

Therefore, this paper is only a first step in an effort to fill a substantial gap in our understanding of how the Paris Declaration commitments are being implemented on the ground and the role that joint country assistance strategies can or should play in this implementation process. One of the main conclusions of this paper is that a more systematic evaluation of completed and ongoing joint country assistance strategies is an urgent priority.

Following this introduction, the first section reviews the Paris Declaration and its links to joint country assistance strategies. The next section provides an overview of the available assessments of joint country strategy experience. This is followed by a section that assesses specific aspects of the joint country strategy process, drawing on worldwide experience as well as the Tajik experience. The concluding section presents overall conclusions and recommendations for the development partners involved in efforts to improve aid effectiveness at the country level. An Annex reports the details of the evolving process of preparing the Tajikistan joint country strategy.

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Johannes F. Linn

A Case Study of Aid Effectiveness in Ethiopia

Getnet Alemu — Tue, 28 Apr 2009 10:34:00 -0400

Introduction

Foreign aid has played a major role in Ethiopia’s development effort since the end of World War II. It has been instrumental in bridging the country’s savings-investment and foreign exchange gaps. Its importance as a source of financing for the development of capacity building (human capital, administrative capacity, institutional building, and policy reforms) is also unquestionable. Thus, increasing efforts were made to mobilize foreign aid in the last two regimes. Following the change in political regime in 1991 and the adoption of the structural adjustment program in 1992/93 in particular, the country has enjoyed a significant amount of aid. A large and growing inflow of concessionary loans and grants has occurred since 2001, following the issuance of the first poverty reduction strategy paper (known as the Sustainable Development Poverty Reduction Program) from 14 multilateral sources—mainly IDA, EC, the Global Fund, and the African Development Fund and more than 30 bilateral sources—mainly the USA, UK, Italy, Canada, Germany, Ireland, Japan, Netherlands, Norway, and Sweden.

Ethiopia has been one of the major recipients of international aid in recent times. According to OECD-DAC statistics, net ODA to Ethiopia amounted to US$1.94 billion in 2006, making it the 7th largest recipient among 169 aid receiving developing countries. In absolute terms, the amount of ODA has risen sharply from an average of $881 million per annum in the second half of the 1990s to over $1574 million per annum for the first half of the 2000s. Over the last seven years (2000-2006), ODA has averaged at $1683 million per year. The average contribution of bilateral donors to ODA over the eight year period was $322.4 million per year accounting for 31 percent of ODA. In the 1990s, some 49 percent of the total net ODA was in the form of multilateral aid. This was slightly reduced to 46 percent for 2000-2006, reflecting the increased importance of non-multilateral sources. Figure 1 presents the recent annual flows of foreign aid to Ethiopia.

As shown, the flow of net ODA actually declined from 1992 to 2000 and sharply increased in 2001 with a modest increase onwards. The main driving force for donors to resume their assistance was the issuance of the Sustainable Development Poverty Reduction Program in 2001/02. Of these significant net ODA flows, the contribution of the World Bank’s support through the soft windows of IDA was tremendous. In 2001 alone it was 38.7 percent of the total net ODA. Since 1993, the Bank has committed a total of $3.1 billion to Ethiopia. Ethiopia receives about $8.0 per capita from IDA. This makes Ethiopia the largest IDA borrower in Africa and the fifth largest in the world. In addition, the Bank has coordinated a consortium of donors to support the economic reform program.

It is also enlightening to examine the magnitude of ODA in relation to the local economy (Table 1). As can be seen from Table 1, the share of ODA increased from 1996 to 2002 and is on a declining trend since then. The growth of the economy since 2003 might have been the cause for such decline. In 2006, ODA flows account for about 48 percent of the gross national savings, 40 percent of gross domestic investments, 58.5 percent of overall government expenditure, and 10 percent of the GNI of the country. Although there was an increasing ODA inflow, the savings-investment gap was as high as 20 percent of GDP, leaving a huge gap to be bridged by non-ODA inflows.

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Getnet Alemu

A Case Study of Aid Effectiveness in Kenya

Francis M. Mwega — Fri, 23 Jan 2009 12:00:00 -0500

Introduction

In September 2000, 149 heads of state and government endorsed the Millennium Development Goals (MDGs). With this endorsement they set themselves eight goals to be reached by 2015 (from the 1990 base), foremost of which is to halve the proportion of the world’s people who were absolutely poor. The MDGs provide a departure from past approaches in addressing poverty. By focusing attention on a core set of interrelated goals and measurable targets, it is now easier to track progress and measure the impact of development interventions.

On many MDGs, although not all, sub-Saharan Africa (SSA) as a region has recorded progress, even though the rate and pace of the region’s gains appear to lag behind other developing regions (United Nations, 2007). SSA faces a substantial shortfall in achieving the MDGs. Bridging the gap requires improved governance, increased public investment, enhanced productive capacity and economic growth, as well the creation of decent work. According to the UN Report, such strategies should adopt a wide-ranging approach that seeks to achieve pro-poor growth. This, in turn, requires comprehensive programmes of human development, particularly in health and education, as well as building productive capacity and improving physical infrastructure. In each case, an effort should be made to quantify the resources required to implement these programmes. Developed countries need to deliver on their various commitments to increase aid to SSA. Contrary to the spirit of Goal 8 (developing a global partnership for development, with targets for aid, trade and debt relief), ODA declined between 2005 and 2006, and was expected to fall slightly in 2007 as debt relief declined.

The last decade or so has, however, seen a radical criticism of foreign aid. This has been driven by the perception that foreign aid has not produced the desired or expected results. This perception is based on two premises. The first is that foreign aid can only raise growth in a good policy environment. This premise is mainly based on evidence from cross-country regressions (Burnside and Dollar, 2000; World Bank, 1998). Hence foreign aid can be a double-edged sword. Where the economic and political environment is right, it can be very helpful in supporting economic and social progress (Lancaster, 1999). Where it is not, it will have no positive effect and will be wasted at best. At worst, it can set development back through the potential negative economic and political impacts it may have.

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Francis M. Mwega

Aid Effectiveness in Cambodia

Ek Chanboreth and Sok Hach — Mon, 29 Dec 2008 12:00:00 -0500

Executive Summary

Development assistance contributes significantly to the development process of Cambodia. After the first General Election in 1993, there have been at least 35 official donors and hundreds of civil society organizations that have provided development aid to Cambodia in various sectors and development areas.

During the last decade, total development assistance to Cambodia amounted to about US$5.5 billion. Cambodia obtained, on average, development assistance of around US$600 million a year during the last five years, of which about 10 percent is provided by non-governmental organizations (NGOs). The main sector destinations included government and administration, health, transportation, education, and rural development.

The large amount of official development assistance (ODA) has been disbursed for technical cooperation (TC). TC represents about half of the total ODA during 1998-2006, while country programmable aid (CPA) accounts for around 40 percent. The impact of TC has become a wider debate for all stakeholders on aid effectiveness to Cambodia. TC has been criticized for being mostly supply-driven and poorly coordinated, and it provides less capacity development than capacity substitution.

It has been noted that the role of non-traditional donors, especially China, and some private donors has been more important in Cambodia. China is the largest donor giving concessional loans to Cambodia. While some criticize that China provides ODA with less attention to development results, such as poverty reduction, China nevertheless contributes to some development areas, particularly the transportation and energy sector, and government-related activities. China has also shared the amount of ODA it planned to give to Cambodia for 2007-2009 during the first Cambodia Development Cooperation Forum (CDCF) and also provided some information to the Cambodian ODA Database. Private donors’ participation in the policy-making process has been increasing. However, their voice has limited influence on the government’s decision making. In general, NGOs cannot lobby the government without intervention and assistance from external/official development partners.

Aid delivery to Cambodia is characterized by a highly de-concentrated environment. Aid to Cambodia is highly fragmented in both in the aggregate and in particular sectors, especially health and education. Due to a large number of donors, the Royal Government of Cambodia (RGC) has to spend a lot of time on meeting and reporting. The costs of aid fragmentation in Cambodia include the establishment of about 100 parallel project implementation units, the existence of 400 donor missions, reviews, and studies per year, and the provision of duplicated technical cooperation and funding. In general, the RGC has to work with various bilateral and multilateral donors to ensure effective and efficient aid coordination.

In addition to aid fragmentation, the delivery of development aid to Cambodia remains volatile although it has been improved during the last five years. Financing remains unpredictable, and the amounts provided are not adequate to the sector’s funding needs. Pledges of ODA disbursements, including the Multi-Year Indicative Financing Framework (MYIFF), are only indicative. In many cases, committed funding is rarely released on time. On the other hand, development partners also criticize the government’s poor financial management system which contributes to the volatility in aid delivery.

To ensure effectiveness of aid, the RGC has strengthened aid coordination and management. Technical working groups (TWGs) have been established in 19 sectors and thematic areas. The RGC committed to exercising full ownership and leadership over its development policies and development actions. More importantly, an online ODA database has been developed and put into operation over the last three years that allows the government and development partners to have better access to information to support their coordination, planning, implementation, and reporting.

Aid is not effective unless it is used to generate greater impact on development results in alignment with the National Strategic Development Plan. Increased effectiveness requires more effort and stronger commitments and willingness from both the RGC and development partners. There are some key challenges with which they need to cope. These include using programme-based approaches, strengthening TWGs, promoting the role of civil society organizations, improving government systems (particularly public financial management), and finally strengthening of information on aid delivery and management.

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Ek Chanboreth
Sok Hach

Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction

Harry Masyrafah and Jock MJA McKeon — Sun, 30 Nov 2008 12:00:00 -0500

Introduction

On December 26, 2004, an earthquake measuring 9.0 on the Richter scale struck off the northeast coast of Nanggroe Aceh Darussalam (Aceh) on the island of Sumatra, Indonesia. In the subsequent tsunami that followed, over 150,000 people lost their lives, while an estimated 700,000 people were displaced. The scale of the damage to the local economy, infrastructure and administration was unprecedented. The magnitude of these events triggered a huge outpouring of compassion and generosity from around the world. The influx of aid and assistance into the province of Aceh in the weeks and months that followed was unprecedented and surpassed all expectations. This paper seeks to provide some insight into the effects of such an influx whilst also exploring some of the coordination mechanisms put in place to manage what was the largest reconstruction program in the developing world at the time.

At the time the tsunami struck, Aceh had been home to a separatist conflict for 30 years. The influx of aid was seen as an opportunity to reach a peaceful settlement of the insurgency and for all parties to work towards community development, not only in rebuilding Aceh, but building it back better. Nearly 500 agencies flooded into the province, bringing funding and promises of a brighter future, whilst creating the enormous logistical challenge of doing so without duplicating efforts and squandering resources.

The second section of this paper looks at how the Government of Indonesia and the international community responded in the aftermath of the disaster and details the extent of the damage and the amount of funding provided towards the reconstruction program. This section also examines some of the many issues that faced the reconstruction of residential houses in the province and puts into context the enormity of the task of rebuilding homes. In contrast to many other reconstruction programs around the world, the money flowed in as promised. The third section examines why agencies began to fail to deliver on promised outcomes despite adequate funding. The fourth section goes on to assess whether the proliferation of agencies involved was effective and examines some of the costs associated with a large number of agencies whilst the fifth section reviews some of the various coordination mechanisms that were put in place to deal with this. Finally, the sixth section examines the key information systems used whilst delving into some of the problems experienced by the users of the systems.

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Harry Masyrafah
Jock MJA McKeon

The Experience with Regional Economic Cooperation Organizations: Lessons for Central Asia

Johannes F. Linn and Oksana Pidufala — Fri, 31 Oct 2008 12:00:00 -0400

Abstract

Since the collapse of the Soviet Union, Central Asia has witnessed repeated efforts to strengthen regional integration through cooperation with the establishment of a number of regional organizations with Central Asian participation. In this paper, we review the experience with regional cooperation initiatives and organizations in Central Asia and the rest of the world. Using a typology of regional organizations that we have developed for this paper, we review the functions and performance of selected regional organizations and compile evidence more generally on the experience with regional cooperation around the globe. Based on this we draw some lessons to help Central Asian countries, their partners and their regional organizations respond effectively to the opportunities and challenges of regional cooperation and integration. Central Asian countries need to realize that effective cooperation is not easy. It takes time and requires a flexible, constructive approach of all major partners. It also requires effective leadership by key countries, institutions and individuals and a careful selectivity for membership and for the mandate of the organization. Where multiple regional organizations overlap in membership and mandate, it is essential to address the risk of costly duplication. The paper concludes with an assessment of the specific implications for the Central Asia Regional Economic Cooperation Program.

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Johannes F. Linn
Oksana Pidufala

Scaling Up: A Framework and Lessons for Development Effectiveness from Literature and Practice

Arntraud Hartmann and Johannes F. Linn — Fri, 31 Oct 2008 12:00:00 -0400

Abstract

Scaling up of development interventions is much debated today as a way to improve their impact and effectiveness. Based on a review of scaling up literature and practice, this paper develops a framework for the key dynamics that allow the scaling up process to happen. The authors explore the possible approaches and paths to scaling up, the drivers of expansion and of replication, the space that has to be created for interventions to grow, and the role of evaluation and of careful planning and implementation. They draw a number of lessons for the development analyst and practitioner. More than anything else, scaling up is about political and organizational leadership, about vision, values and mindset, and about incentives and accountability—all oriented to make scaling up a central element of individual, institutional, national and international development efforts. The paper concludes by highlighting some implications for aid and aid donors.

An annotated bibliography of the literature on scaling up and development aid effectiveness was created by Oksana Pidufala to supplement this working paper. Read more »

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Arntraud Hartmann
Johannes F. Linn

Measuring the Cost of Aid Volatility

Homi Kharas — Thu, 31 Jul 2008 12:00:00 -0400

Executive Summary

Flows of official development assistance (ODA) to recipient countries have been highly volatile and this reduces their value. At the macro level, empirical evidence suggests that volatile ODA can negatively impact growth through several channels. At the micro level, volatility can affect fiscal planning and the level and composition of investment. This working paper develops a simple financial metric that policy makers can use to estimate (and reduce) the cost of aid volatility. Unlike other estimates, our measure does not depend on parameter estimates from cross-country regressions, nor on country-specific model simulations.

We treat aid flows as the uncertain return on an unobserved asset of “global goodwill” held by developing countries. We then calculate the certainty equivalent value of the volatile aid flows as well as an associated dead weight loss, using a capital asset pricing model. Our measure of the deadweight loss per dollar provided in aid permits a comparison of costs across donors and over time. We find that the costs of volatility rose steadily until 2002, and have since fallen.

Aid volatility is similar for low and middle income countries; weak states and strong states; aid dependent and low-aid countries; and across regions. Aid volatility differs substantially, however, by donor. We infer that donor policies contribute to volatility and that they should make reducing volatility a strong priority.

Key Findings

ODA is much more volatile than major macro variables: five times as volatile as GDP and three times as volatile as exports for the average recipient. ODA typically magnifies real business cycles in recipient countries.
The aid system generates massive negative income shocks to some developing countries (on rare occasions). These large negative shocks account for the high cost of volatility. The impact of aid shocks has been as large and as frequent as income shocks faced by developed countries during the two World Wars, the Great Depression and the Spanish Civil War.
The deadweight loss associated with aid volatility is between 15 and 20 percent of the total value of aid in recent years. At current aid levels, this loss is about $16 billion.
From the average recipient’s perspective, the deadweight loss is about 1.9 percent of GDP.
Volatility costs between $0.07 and $0.28 per dollar of aid, depending on the donor.

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Homi Kharas

The Political Economy of Poverty Reduction

Raj M. Desai — Fri, 30 Nov 2007 12:00:00 -0500

Executive Summary

Large-scale antipoverty programs have achieved significant and positive results in many developing countries around the world in the past decade. This paper explores the challenges of “scaling up” small-scale antipoverty programs—taken here to mean the processes by which successful efforts to raise the incomes of the poorest citizens in developing counties are expanded in coverage over time and across geography. In particular, I advocate supplementing approaches that highlight resource and program constraints with an expanded focus on the political dynamics involved in expanding pro-poor policies. Thus, greater emphasis should be placed on understanding the political factors that limit the expansion and survivability of antipoverty programs. A broader view along these lines highlights the bargaining strength of beneficiaries, the need to secure public support, the potential for political misuse of antipoverty programs, and how institutional fragilities affect their sustainability. Antipoverty programs can be effectively scaled up if attention is paid to addressing these political and institutional challenges. An agenda for future research is also identified.

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Raj M. Desai

Trends and Issues in Development Aid

Homi Kharas — Wed, 28 Nov 2007 12:00:00 -0500

Executive Summary

This note provides background data and analysis on what has been happening to aid flows and the resulting change in aid architecture. It is based on data taken from the OECD/DAC and on a review of the literature.

Key numbers on development assistance trends

Net official development assistance (ODA) from the 22 DAC member countries has increased to over $100 billion over the last two years, with a promise of increases of 30 percent over the next three years.
Most ODA is for special purpose needs which do not translate into funds available for development projects and programs. Developing country governments are only receiving about $38 billion in net country programmable aid (CPA).
Sub-Saharan Africa is especially hard hit by this wedge between ODA and CPA. It only received $12.1 billion in CPA in 2005, showing almost no increase over the preceding two decades.
Non-DAC bilateral assistance (NDBA) is growing rapidly and amounts to more than $8 billion in ODA and $5 billion annually in CPA.
Private aid (PrA) from DAC member countries might already contribute between $58-68 billion per year, although aggregate data is sketchy.
Total aid flows to developing countries therefore currently amount to around $180 billion annually.

Key trends in aid architecture

Multilateral aid agencies (around 230) outnumber donors and recipients combined.
Multilaterals only disburse 12 percent of total aid (offi cial plus private), and about one-quarter of total net CPA.
Multilaterals disburse more towards Africa than do bilaterals.
The average number of donors per country is growing, while average project size appears to be shrinking, implying growing fragmentation of aid.

Key Issues

Mechanisms for information sharing, coordination, planning and aid administration are increasingly costly and ineffective.
There is a growing need for efficient allocation rules for donors to fund the growing number of aid agencies, but assessments of aid agency effectiveness is in its infancy.
Scaling up, learning and innovation could advance as new players experiment with new methods, but would require more public and private sector exchanges.

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Homi Kharas

Image Source: Reuters Photographer / Reuters