Aid and Reform in Africa: Lessons from Ten Case Studies
Shanta Devarajan, David Dollar, and Torgny Holmgren
Development Research Group, the World Bank
World Bank: March 27, 2001.
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Since the early 1980s, virtually every African country has received large amounts of aid aimed at stimulating policy reform. The results have varied enormously. Ghana and Uganda were successful reformers that grew rapidly and reduced poverty. Cote d'Ivoire and Ethiopia have shown significant reform in recent years, but it remains to be seen if this is sustained. In other countries policies changed little or even got worse. The paper synthesizes the findings from ten case studies that investigate whether, when, and how foreign aid has affected economic policy in Africa.
The main findings from the case studies are that:
- Formation is primarily driven by domestic political economy. Most major reforms have been preceded by economic and political crises.
- Large amounts of aid to countries with bad policy sustain those poor policies.
- In general donors have not discriminated effectively among different countries and different phases of the reform process. Donors tend to provide the same package of assistance everywhere and at all times.
- Aid played a significant and positive role in the two sustained reformers (Ghana, Uganda). It helped with ideas in the initial phase. Financial assistance grew as policy improved and increased the benefits of reform, helping sustain political support.
- The composition of aid is important. In the pre-reform period, technical assistance and policy dialogue are most supportive of reform. During periods of rapid reform, policy dialogue is important, as is finance. This is the phase in which conditional loans tend to be useful and effective. At a later stage of reform, conditionality is less useful, while finance remains important.
- In summary, aid in some cases has been effective in supporting policy reform, and by building on the lessons from these case studies assistance could be more systematically effective in this way.