Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals

Abstract

More effective development aid could greatly improve increase the likelihood of sustained good policy (an idea poverty reduction in the areas where poverty reduction is ratified in several recent case studies of low-income expected to lag: Sub-Saharan Africa, Eastern Europe, and reformers). Central Asia.Collier and Dollar find that the world is not operating Even more potent would be significant policy reform on the efficiency frontier. With the same level of in the countries themselves.concern, much more poverty reduction could be Collier and Dollar develop a model of efficient aid in achieved by allocating aid on the basis of how poor which the total volume of aid is endogenous. In countries are as well as on the basis of the quality of their particular, aid flows respond to policy improvements policies. that create a better environment for poverty reduction Global poverty reduction requires a partnership in and effective use of aid.which "third world" countries and governments improve They use the model to investigate scenarios-of policy economic policy while "first world" c izens and reform, of more efficient aid, and of greater volumes of governments show concern about poverty and translate aid-that point the way to how the world could cut that concern into effective assistance. poverty in half in every major region.The fact that aid increases the benefits of reform suggests that a high level of aid to strong reformers may This paper-a product of the Development Research Group-is part of a larger effort in the group to study aid effectiveness. Copies of the paper are available free from the World Bank,

Foreign aid and governance in Africa

“…The targeting of aid contingents on negative supply shocks is better than targeting based on good policies. Collier & Dollar (2001) The positive effect of aid on poverty depends on its impact on per capita income growth and per capita income growth on poverty reduction.…”

Targeting, Universalism, and Single-Mother Poverty: A Multilevel Analysis Across 18 Affluent Democracies

“…This point grows out of the common criticism that the primary beneficiaries of social policies are typically the non-poor and that only a small share of welfare spending actually goes to those at or near poverty (Goodin and LeGrand 1987). By avoiding expending precious resources on those not at risk of poverty (often called "leakage"), targeted programs free up additional resources that can be channeled into ensuring the basic security of low-income households (Collier and Dollar 2001;Squire 1993). Moreover, because the poor are more likely to spend assistance on consumption than savings, targeted programs are more likely to translate into basic needs like housing and food.…”

The Relationship between Income Inequality, Poverty and Globalization

“…The results suggest evidence of an inverted U-shape relationship between globalization and poverty, indicating that globalization at low (higher) levels tends to increase (reduce) poverty. However, Collier and Dollar (2001) estimate that poverty in the developing countries will decline by about one-half by 2015. The reduction is contingent on the trend of the 1990s being stable, an improvement in aid effectiveness in lagging regions, the quality of economic policy, and significant policy reforms in these countries to create a better environment for poverty reduction and effective aid.…”