Not all aid recipients have data for 2007 on population, GDP, or CPIA scores. Most notably, Iraq and Afghanistan accounted for more than 27% of U.S. ODA in 2007, but are missing data on GDP and CPIA. The U.S. ranks relatively low on policy selectivity regardless, but likely would fall even further if those two recipients were in the sample.

We follow Dollar and Levin (2006) in computing an Aid Selectivity sub-index by equally weighting the policy and poverty elasticity estimates for each country, after standardizing them to mean 0 and standard deviation equal to 1. (These z-scores are listed in Appendix Table A1.) The correlation between policy and poverty selectivity is .53, indicating that donors that are selective on one dimension are also (ceteris paribus) selective on the other.

Aid selectivity for all aid—that is, aid summed over all donors—is remarkably stable over time. Our GDP and CPIA elasticities (respectively) for 2007 are -.52 and +1.91, reflecting only marginal improvements over the 2002 estimates of -.49 and +1.76 reported in Dollar and Levin (2006). Because of the difficulties of establishing a robust empirical link between selectivity and recipientcountry growth or poverty reduction, there is no way of knowing for sure whether aid in the aggregate is yet selective ―enough‖ in either the poverty or policy dimension to maximize its impact on poverty reduction. The assumption implicit in the various aid-donor ranking exercises is that it is not, since all donors are still rewarded at the margin for increases in selectivity.

As Dollar and Levin (2006) note, the use of the World Bank-constructed CPIA index as the measure of policy quality potentially biases the selectivity rankings in favor of the World Bank’s IDA. They therefore replicate their analysis substituting a combination of the International Country Risk Guide’s (ICRG)―rule of law‖ indicator and the Freedom House (FH) democracy index for the CPIA. Using this variable, several donors move up or down quite a few places in the rankings, suggesting some sensitivity to the choice of policy variable. Nevertheless, rankings on policy selectivity and overall aid selectivity (respectively) constructed with the ICRG/FH policy variable are correlated with their original rankings at .65 and .77. Moreover, the alternative measures have serious shortcomings: most (like the ICRG) cover only a few of the many development-related policy areas measured in the CPIA, and the few with its breath of policy coverage (like the Economic Freedom of the World Index) do not match its coverage of aid recipient countries.

We can further test for a World Bank bias by using the CPIA ratings produced by the African and Asian Development Banks. Those ratings use the same scale and the same questionnaire as the World Bank’s CPIA, but they reflect the judgments of African and Asian Development Bank staff rather than World Bank staff. We ran the selectivity regression for the World Bank’s allocations to the 73 countries rated by either of those two regional development banks, first using the World Bank’s own CPIA ratings, and second using the AfDB/AsDB ratings. The World Bank scores better on both policy and poverty selectivity using the other development bank’s ratings than it does using its own ratings, suggesting that our use of the World Bank CPIA ratings does not bias our selectivity rankings in favor of the Bank.<sup>7</sup>

> need similarly restricts the samples for the regional banks. Dollar and Levin (2006) apparently did not truncate the sample of recipients for regional development banks in this manner.

> 7 In the case of the AfDB, policy selectivity improves marginally and poverty selectivity worsens marginally when we calculate them using the institution’s own ratings for 50 countries instead of the World Bank’s CPIA.  The AsDB scores better on both poverty aand (especially) policy selectivity using its own ratings in place of the World Bank’s.

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