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Improving upon the World Bank’s Country Policy and Institutional Assessment: A New Performance Indicator Based on Aid Effectiveness

  • Julia Cagé EMAIL logo

Abstract

This article questions the relevance of the different measures of policy performance that are currently used by international organizations to allocate development aid. It evaluates more especially the pertinence of the World Bank’s Country Policy and Institutional Assessment (CPIA). Using a cross-country panel dataset over 146 countries between 1977 and 2008, I show that while the CPIA is correlated with current growth, it is not a good predictor for future growth. I then discuss the relevance of several instruments for aid allocation. In particular, I propose a performance indicator based on “aid effectiveness” to allocate aid selectively, and discuss a new way of assessing time-varying aid effectiveness.

JEL: F35; H50; O10; O19

Corresponding author: Julia Cagé, Department of Economics, Sciences Po Paris, 28 rue des Saints-Pères, 75007 Paris, France, e-mail:

Acknowledgments

I am particularly thankful to Ravi Kanbur, Akbar Noman, Thomas Piketty and Joseph Stiglitz for helpful comments and suggestions. Participants at the Initiative for Policy Dialogue Task Forces also provided valuable advice. A first draft of this paper was prepared for the Tokyo International Conference on African Development (TICAD). The usual disclaimer applies.

Appendix

Data Sources and Description

Aid: Net Aid Transfers (NAT). Source: DAC.

CPIA: Country Policy and Institutional Assessment. Annual performance assessment of its client countries’ capacity to effectively absorb development assistance carried out by the World Bank since 1977. Source: World Bank.

Per capita GDP growth rate: Annual percentage growth rate of per capita GDP at market prices based on constant local currency. Source: WDI.

M2 (% GDP): Money and quasi money comprise the sum of currency outside banks, demand deposits other than those of the central government, and the time, savings, and foreign currency deposits of resident sectors other than the central government. Source: WDI.

Table A1

CPIA Criteria, 2008.

A. Economic management
1. Macroeconomic management
2. Fiscal policy
3. Debt policy
B. Structural policies
4. Policies and institutions for economic cooperation, regional integration and trade
5. Financial sector
6. Business regulatory environment
C. Policies for social inclusion/equity
7. Gender equality
8. Equity of public resource use
9. Building human resources
10. Social protection and labour
11. Environmental policies and regulations
D. Governance rating: public sector management and institutions
1. Property rights and rule-based governance
2. Quality of budgetary and financial management
3. Efficiency of revenue mobilization
4. Quality of public administration
5. Transparency, accountability, and corruption in the public sector

Source: World Bank (2008).

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Published Online: 2015-2-14
Published in Print: 2014-12-1

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