spending.<sup>25</sup> Indeed, there is some evidence that aid flows are correlated with lower local tax collection, a declining quality of democratic institutions and weaker export performance in manufacturing.<sup>26</sup> One recent study suggests that (in contrast to loans) grants reduce domestic revenue mobilization in particular in countries plagued by high corruption, where the decline in domestic collection is large enough to completely offset the increase in grants.<sup>27</sup> Aid may also act as a prop to countries following inappropriate or unsustainable policies (to the extent we know what such policies are).<sup>28</sup> In addition, aid can put a considerable burden on what limited institutional capacity is in place in a developing country. Many senior officials in Ghana spend as much as 44 weeks a year facilitating or hosting donor missions. Between 2000-2002 there were an estimated 1,300 donor-financed projects in Tanzania, 1,000 donor meetings a year and 2,400 reports due a quarter.<sup>29</sup> This is a problem that is getting worse, with the number of projects launched by donors and reported to the Creditor Reporting System rising from around 10,000 in the 1995-7 period to 27,876 in 2003.<sup>30</sup> These projects suck not only time but also talent from governments. At one point aid-supported technical assistants in Tanzania were collecting twice the wages and salaries of all Tanzanian government employees combined. Pay scales 12 to 25 times the size of government rates in a recent donor-funded agricultural project in Kenya lured away seven government economists, for example.<sup>31</sup> Aid also creates claims on future recurrent budgets –if it is financing the wrong thing, then, it can have a long-term negative impact on the efficacy of government financing.<sup>32</sup>

# **When Does Aid Work (in terms of growth impact)?**

Given that a number of the traditional arguments for why there might be a link between aid flows and economic growth appear to be empirically weak, and that there are some reasons for thinking aid might actually slow growth performance over the long term, it should come as some comfort that the majority opinion in the aid and growth literature appears to be that aid, at least in certain circumstances, can promote growth. This result is, to bastardize Johnson, like a dog’s walking on his hind legs. It is not done well --but you are surprised to find it done at all. One recent literature survey found 34 studies suggesting such a link (although it did miss out a number of prominent papers pointing the other way) while a metastudy of 68 papers suggests a small positive impact of aid – although one that is statistically insignificant.<sup>33</sup> Ignoring the issue of significance, the metastudy results suggest that aid has increased income per capita in poor countries as a whole by 20 percent since the 1960s.<sup>34</sup> Most aid effectiveness studies tend to find little or no significant link between aid flows and economic growth in general, but many do find such a link if they split or condition results by recipient characteristics (‘good policy’ recipients, those with ‘strong institutions’ or ‘non-tropical’ recipients), by type of aid (netting aid for social sectors or particular donors)<sup>35</sup> or by timing (post-cold war and before). As a result, it might be widely accepted that recent concessional loans (rather than grants)<sup>36</sup> to rich countries<sup>37</sup> currently receiving little aid,<sup>38</sup> with strong ownership of proposed projects including co6