Measuring aid costs: what has been learnt and what still needs to be learnt

Abstract

This short article reviews recent efforts to measure the costs to recipient governments of how aid is managed. Overall measurement of transaction costs was found to be impractical, so the focus of empirical work shifted to ranking categories of perceived costs. Results indicated that recipient governments find the lack of fit of donor approaches with their own to be more burdensome than the administrative costs of dealing with multiple donors. Subsequent surveys have monitored changes in alignment and harmonisation. While there is clear progress in defining and assessing indicators of donor behaviour, two issues stand out for urgent attention. First, the need to give priority in future surveys to assessing changes in capacity of recipient governments, since capacity underlies alignment. Second, the need for conceptually consistent and reliable international data on aid flows, particularly to enable quantitative assessment of the effectiveness of different types of aid.

Foreign Aid Transaction Costs: What Are They and When Are They Minimised?

“…She did, however, report a number of suggestions as to how transaction costs might be measured, including proxies such as the number of reports, missions, meetings, separate legal instruments, separate audit requirements, and number of staff (particularly sector specialists) required by donors. Amis et al (2005) came to the conclusion that when the initial focus of trying to provide an overall quantitative measurement of transaction costs proved to be impractical, the emphasis shifted towards a more relative approach, ranking burdens of aid as perceived by recipient officials. This is the approach now used by the OECD's DAC (2005).…”

Can Donor PIUs Support Country Systems?

“…Tanzania's objections to donor approaches led to the government and donors endorsing an aid partnership approach in the mid‐1990s (Helleiner, ) and the increase in sector programmes In areas such as health, in which government structures carried out implementation and donors pooled their funds (World Bank ). A multi‐region study of aid transaction costs faced by recipient government personnel in 2002 for the OECD found that ‘donor driven policies and systems’ and ‘difficulties with donor practices’ topped the list of complaints made (Amis et al, : 374). Some aid recipient governments – particularly the less aid dependent – had moved to integrate donor PIUs into government.…”