The costs of favoritism: Is politically driven aid less effective?

Abstract

The bureaucratic agents, for their part, may desire to implement effective programs irrespective of the political motivations of donors. Politically motivated aid might, however, fall short in delivering development benefits. First, politically motivated aid allocation may lead to the approval of lower-quality projects to favored countries, compared with competing projects from other countries. Second, politically motivated projects may face less intense supervision by the World Bank or the recipient country to achieve success on development outcomes, particularly if more intense supervision might lead to reduced or delayed resource transfers. Moreover, the granting of a project may delay important policy reforms that could, among other things, also promote project success. The direct connection of this measure to each specific project represents its key advantage over broader and noisier measures, such as economic growth, a variable influenced by many factors beyond World Bank support. Some readers might worry that World Bank evaluations may be biased.