AID SELECTIVITY PRACTICE AND AID EFFECTIVENESS IN SUB-SAHARAN AFRICA

(ProQuest: . denotes formulae omitted.)1.INTRODUCTIONIn theory, foreign aid is expected to serve as a means of transferring capital from developed economies to developing ones. By doing this, it is likely that aid would stimulate social and economic reforms by providing funds for development projects such as infrastructure, technologies, education, health, and revitalizing crises stricken economies; thus, resulting in economic growth. However, there has been a long standing and sustained debate about aid-growth relationship that has challenged the effectiveness of aid on several grounds; making the aid-growth link vague. Empirical evidences have shown that some of the high recipient countries of foreign aid in the world especially in Sub-Saharan Africa (SSA) such as Central African Republic and Malawi are still unable to account for positive corresponding growth, while few countries like Niger has recorded significant economic progress (see Leeson, 2008). Interestingly, an Important question to ask, Is why aid works In certain countries and falls In some others? Past studies have highlighted several determinants of aid effectiveness.The study that made the most popular qualified analysis of aid effectiveness is that of Burnside and Dollar (2000), which posits that macroeconomic policy is an important determining factor of the growth promoting impact of foreign aid. For instance, foreign aid is expected to be more effective in countries with good macroeconomic policies than countries with bad macroeconomic policies. Other studies such as Collier and Dehn (2001), Dalgaard, et al (2004), and Ang (2010) opined that export price shocks, climate related differences and financial liberalisation, respectively are channels through which aid affects growth. Against the background, foreign aid strategies have undergone fundamental reassessment as donors have come up with several measures to ensure that aid becomes more effective. Initially, the concept of aid conditionality1 was the practice by the donor community. This practice went through little change after the influential study of Burnside and Dollar (2000). After the study, it was acknowledged that aid did promote growth but should be allocated to countries that have adopted good policies. As a result, aid selectivity or ex-post conditionality (Ramiarison, 2010) came into practice - where in some cases, foreign aid is attached to several considerations and prerequisites such as macroeconomic policy reforms, governance, and poverty or need, among others. As a general measure of adequacy in recipient countries, aid selectivity in the recent times, in most cases, is pinned on the state of governance. Consequently, efforts toward good governance in developing countries have become a condition for attracting development assistance. However, because donors also consider other factors related to living standards such as poverty when giving aid, it becomes difficult for donors to aim at good governance alone as prerequisite for aid as countries with weak governance most time record low living standards. As a result, aid selectivity practice becomes difficult to implement. Nevertheless, Collier (1999) suggested a dynamic case for a temporary increase in aid. That is, aid should be targeted at inducing policy reform and to increase it evenafter policies improve because the resulting growth needs to be sustained within a situation oflow private investment. According to him, "aid needs to taper inwith policy reform rather than to taper out with reform as it is the actual donor behaviour". A lot of weaknesses can still be identified in developing countries as regards economic reforms. This situation is likely an important reason why donors are agitating for elements that can boost the effectiveness of aid. For instance, in a summit on combating poverty in Africa, held at Gleneagle, Scotland on July 7-8, 2005, the G-8 leaders reiterated the requirement for aid in their final Communique. …