necessary that the broader public expenditure program be consistent with development aims. It no longer sufficed to ensure that a single project was well designed and implemented.

Both advances in thinking would have the effect of shifting development resources from countries with poor policies, institutions, and governance to those with better environments for growth. While this strategy had strong economic justification, it raised a troubling question: what could the development community do to help the hundreds of millions of people living in the countries with the poorest aid environments? More recent work has begun to address that question, and while it is too early to assess whether that work will bear fruit, merely putting the question squarely on the development research agenda is a major advance.

One reason why aid is often not effective is because the donor community has no evidence about which policies really work in a given economic, social and political setting. “Donors are shooting in the dark because they refuse to collect solid evidence on what works,” says Angus Deaton. Impact evaluation is aimed at changing that. For many academic researchers, aid effectiveness is synonymous with randomized evaluation or evaluation using quasiexperimental methods. Impact evaluation differs from the internal evaluation efforts carried out at the World Bank by various units, including QAG (quality at entry) and IEG (ex post evaluation).<sup>6</sup> While the latter evaluate processes, assess whether projects have reached their intended objectives and document changes in specific outcomes, impact evaluations carried out in other parts of the Bank evaluate the development impact of the project on the population (e.g., on poverty or health outcomes) by comparing the observed outcomes to a counterfactual (i.e., what the situation would have been if the program had not been undertaken). Impact evaluations are a scientific means of establishing causal links between interventions and outcomes and constitute a key input to determining cost-effective approaches to development. Aid can be much more effective if we base our policies on such rigorous methods.

# **Box 2.  The Chinese Approach to Development:  Pragmatism and Gradual Reform**

In the Marshall lectures he delivered at Cambridge University, the Chief Economist of the World Bank states that “political wisdom derived from Chinese culture— _shishiqiushi_ (finding truth from the facts), _jiefangsixiang_ (freeing one’s mind from dogmatism) and _yushijujin_ (adapting to the changing environment)—can be relevant to reform-minded governments in other developing and transitional countries.” The experience of China convincingly demonstrates that during a gradual reform process, “the government should not have a predetermined, grand blueprint. Instead, it should follow a diagnostic approach, finding out the most crucial binding constraints on incentives and resource allocation and introducing reform measures that are effective but which can be regarded as ‘half-way measures’ by market fundamentalists. In the process, the government should encourage and pay attention to local and private initiatives in institutional innovations—as demonstrated convincingly by the experiences in China.” Source: Justin Yifu Lin 2009.

Development involves know-how and practical knowledge that borrows from universal forms of knowledge (like economics and the social sciences) but depends heavily on local experience and history. It is not knowledge that can be reproduced at will by the state or a technical agency as emphasized by social scientists like Jim Scott (1998) or Charles Sabel (2005). The more successful development experiences (Japan, Korea, South East Asia,

> 6  QAG stands for Quality Assurance Group and IEG for Independent Evaluation Group.

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