Does it matter who provides aid?

• Author: Boriana Yontcheva
• Position: IMF Institute
• Pages: 330

Page 330

The debate over aid effectiveness continues unabated, but the economic literature has so far focused almost exclusively on official bilateral aid. Nongovernmental organizations (NGOs), however, account for a growing share of development assistance, and the proponents of NGO aid argue that it is allocated for the "right" reasons and is distributed directly at the grassroots level. Therefore, NGO aid is considered untainted by the two sins commonly attributed to official bilateral aid-namely, that it is given for political reasons unrelated to development and that recipient governments misuse it.

But are NGOs truly more effective than official bilateral donors? A recent IMF Working Paper by Nadia Masud and Boriana Yontcheva sidesteps the question of whether aid boosts economic growth to take a closer look at aid's contribution to improving human and social welfare. The research examines the effects of aid on two indicators-infant mortality, for health, and adult illiteracy, for education-to determine whether aid has had a positive effect and whether NGO aid has been more effective than official aid.

To date, the only studies on NGO aid effectiveness have been conducted at the project level. There is a good reason for this-NGOs are private organizations and highly diversified, and there are no data sets covering all aid flows from all international NGOs.

The Working Paper focused on available data from 1990 to 2001 for projects proposed by European NGOs and cofinanced by the European Union. These are imperfect data. The number of countries varied from regression to regression-owing to missing observations for key variables, including female illiteracy, levels of governance and rural development, development as measured by real GDP per capita, poverty headcount, and population growth rate. Nevertheless, they afforded the opportunity for a first effort at measuring the impact of NGO aid at the macroeconomic level.

NGO effectiveness

The Working Paper turned up mixed results, but an overall advantage for NGO-provided aid. The analysis found that a statistically significant improvement in infant mortality was associated with increases in NGO aid but that no such effect was apparent with increased bilateral aid. In the case of...