Working Paper

Halving Poverty by Doubling Aid: How Well Founded is the Optimism of the World Bank?

Kiel Working Papers, 1116

The article criticizes the World Bank as overy optimistic concerning its ability to raise the effectiveness of aid by concentrating aid on countries with good policies. It is shown that aid flows to the main recipient regions yielded the highest correlation to growth when their magnitudes shrank. It is argued that more aid can impair the quality of domestic policies in the recipients (endogeneity problem). The paper instead pleads for a shift of aid policies from country-oriented to issue-oriented aid. An international endowment fund under supranational law should help to finance such issues.