Aid allocation and fragile states

This paper summarises research on aid allocation and effectiveness, highlighting the current findings of recent research on aid allocation to fragile states. The paper examines the broader context of research and analysis on how aid should and is being allocated across all developing countries.

Various aid allocation models and their implications for aid to fragile states are considered. The paper also looks at types of instruments and their sequencing in fragile states.

Recommendations for donors include:

• the issue of under- and over-aided fragile states needs to be addressed
• aid volatility to fragile states must be checked, especially in the case of the under-aided fragile states, the aid orphans
• diminishing aid returns and related absorptive capacity constraints need to be addressed urgently.

The paper draws four main conclusions:

• donors need to resolve the co-ordination problem that leads to donor orphans and excessive volatility of aid flows
• absorptive capacity constraints in fragile states need to be urgently addressed. These constraints can result in aid being counterproductive or harmful, reducing growth and increasing poverty
• there is some evidence that ring-fenced, long-term investments in human capital and working with civil society and the private sector has potential to increasing absorptive capacity even prior to government-wide reform
• further consideration of the different variables that can make aid more or less effective in generating growth and poverty reduction is warranted.

[adapted from author]