Tony Blair is right to chide other G8 countries for failing to live up to the promises of 2005. They must all deliver what they pledged. But the Prime Minister has missed a trick in focussing solely on the quantity of aid. What matters is quality and effectiveness. Our new League Table of Aid Effectiveness, based on figures from the Centre for Global Development, reveals that many G8 countries have a very long way to go.The statement goes on to call for the creation of an international watchdog agency to monitor aid quality and press donors to improve. I cannot find the actual league table online, but it appears to be based on the final column of Table 8 (page 36) of the background paper for the CDI's aid component, which shows the overall measure of aid quality. The U.K., for example, comes in at 44%, which is indeed the highest among the G-7. At the low end, G-7 member Italy comes in at only 32% while Japan is at 28%. Intuitively speaking, these numbers can be interpreted to suggest that each pound of British aid delivers 44 pence in value while each Euro of Italian aid ends up being worth only 32 Euro cents on the ground, the other 68 cents being dissipated by inefficiency. But don't take that interpretation literally: the best way to understand the numbers is simply in comparison to each other. Where do those numbers come from? The CDI factors in three aspects of aid quality. It penalizes "tying" of aid, which is when governments offer aid but require that it be spent on the donor country's own goods and services. A prime example is U.S. food aid, which must be bought from U.S. farmers and shipped on U.S. boats even when it could be purchased from farmers in the developing world much more cheaply. (For more on that, watch Andrew Natsios's excellent speech in late 2005.) Meanwhile, the aid component rewards "selectivity," counting aid more if it goes to countries that are deserving (poor) but relatively well-governed. Aid to Iraq gets discounted 90% because of worries about corruption and rule of law there. The same goes for Israel because it is pretty rich. Finally, the Index penalizes proliferation of small aid projects, which may overburden thinly staffed government agencies in receiving countries with meetings and reporting requirements. (Theoretical papers modeling this danger are here and here.) Anyone who digs into the CDI aid component background paper will discover that, however reassuring the Tory endorsement, the calculations are open to debate. Is aid to Madagascar exactly three times as effective as aid to Oman (Table 5, Column F)? Are small projects always worse? Then there are the aspects of aid quality not included for lack of data or clarity about how to measure them, such as aid volatility and coordination among donors. (Nancy Birdsall's "Seven Deadly Sins" provides a great survey of this terrain.) So as one who has descended deep into the caves of aid quality measurement, and made it back to the surface, I can report that the intriguing agency the Conservatives propose would face tough practical challenges. On the other hand, the worse the donors behave (their behavior clearly makes little sense from the point of view of their "customers" in developing countries, to whom they are unaccountable), the easier it ought to be demostrate that fact--and the more room there must be for improvement.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.