Are post-conflict aid projects more successful than others?

Lisa Chauvet, Paul Collier, Marguerite Duponchel 16 November 2010

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Post-conflict situations are characterised by economic opportunities for recovery and political incentives for reform and change. The opportunities provided by the need to rebuild the collapsed economy should make aid particularly effective in the first post-war decade. This opportunity, however, may be offset by the limits to absorptive capacity created by particularly difficult economic and administrative environments. The limited quantitative evidence available suggests that from the perspective of aid effectiveness, the former effect dominates (see for example Guillaumont and Lalaaj 2006).

Collier and Hoeffler (2004) conclude that during the first few years of peace the absorptive capacity of aid is about double its usual level. Elbadawi et al. (2008) find that the appreciation of the real exchange rate induced by aid is much weaker in post-conflict situations, making aid more effective than usual. Adam et al. (2008) show that post-conflict aid reduces inflation by reigning in the deficit financing typical during conflict. Duponchel (2008) finds that aid stabilises the post-conflict environment, although with diminishing returns – the optimum amount of aid is around 4.8% of GDP, around double the average observed in her sample.

In a recent paper (Chauvet et al. 2010), we use project-level data to investigate the effectiveness of aid in post-conflict situations. We use information on World Bank projects and investigate whether performance is systematically different in post-conflict situations. We also investigate whether post-conflict situations call for particular sector targeting, enhanced supervision effort, or special sequencing of project launching.

Post-conflict environment has a negative influence on the success of aid projects...

We estimate the probability that World Bank projects will be successful. World Bank projects are assessed by an independent institution, the Independent Evaluation Group. The IEG has provided the evaluation of all World Bank projects worldwide since the 1960s. The outcome of each project is rated from 0 (highly unsatisfactory) to 5 (highly satisfactory).

As determinants for the success or failure of World Bank projects, we take into account a set of countries' characteristics (income level and growth, population, political, financial and economic risk as measured by the Institutional Country Risk Guide). We also capture projects’ characteristics provided in the IEG database: the expected duration at the start of the project, whether it is an investment project, whether it is funded through the International Development Agency, as well as the quality of preparation and supervision.

We find that projects started in a post-conflict environment have lower chances of success than projects implemented in countries at peace.

...which can be offset by good preparation and supervision

However, both the quality of preparation and supervision have a positive and significant effect on the probability of success. In fact, we find that good preparation and supervision can offset the negative effect of implementing a project in a post-conflict environment. Supervision seems to be particularly important in post-conflict situations. At the average level of supervision, a project started in post-conflict has a 39% higher chance of success than a project started in a peaceful country.

...and which decreases with peace duration.

We examine when during post-conflict aid projects have the highest chance of success. We include a measure of the number of years since peace onset at the start of the project. We find that the relationship between time since peace onset and the probability of success is non-linear and depends highly on the quality of supervision. The probability of success is higher in post-conflict environments than in peaceful environments during the first four to five years. The significant positive impact of supervision fades overtime as peace is sustainable. Supervision, in other words technical assistance, is therefore particularly important in the fragile early years of peace when the local capacities are still lacking and the environment is highly volatile.

Are some sectors more promising in post-conflict?

Finally, we explore whether post-conflict situations call for special sectoral targeting. However, as we only have access to cross-sectional information and not information generated by a sequence within a particular country, we purposely avoid making strong statements about sector sequence.

We observe that projects in urban development and transports are relatively more successful in post-conflict situations. This result can easily be explained: war leads to a large destruction of urban and transport infrastructures that need to be rebuilt for the economy to recover once the conflict is over. Projects relating to social protection (i.e. policies to alleviate poverty and promote equitable growth) follow a similar pattern. The probability of success increases with the duration of post-conflict peace. On the contrary, projects targeting the private sector should wait for few years of peace.

The immediate aftermath of war is hardly a favourable environment for business prosperity. But as time since peace onset passes this trend is reversed. We also find that projects targeting education loses their comparative advantages and are less successful than project in other sectors in post-conflict countries. Extra supervision is therefore needed to increase the chances of success of education projects, even in early post-conflict when rebuilding lost skills is a necessity.

References

Adam C, P Collier and VB Davies (2008), “Postconflict Monetary Reconstruction”, The World Bank Economic Review, 22(1):87-112.

Chauvet L, P Collier, and M Duponchel (2010), “What Explains Aid Project Success in Post-Conflict Situations?”, Policy Research Working Paper 5418, World Bank, Washington DC.

Collier P and A Hoeffler (2004), “Aid, Policy and Growth in Post-Conflict Countries”, European Economic Review, 48:1125-1145.

Duponchel M (2008), “Can Aid Break the Conflict Trap?”, University Paris 1, CES, mimeo.

Elbadawi IA, L Kaltani, K Schmidt-Hebbel (2008), “Foreign Aid, the Real Exchange Rate, and Economic Growth in the Aftermath of Civil Wars”, The World Bank Economic Review, 22(1):113-140.

Guillaumont, P, and R Lalaaj (2006), “When instability increases the effectiveness of aid projects”, Policy Research Working Paper Series, 4034.

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Topics:  Development

Tags:  development, aid, Conflict, World Bank

Research Fellow at the Institut de recherche pour le développement (IRD).

Professor of Economics at the University of Oxford and Director of the International Growth Centre

PhD student, University Paris 1 Pantheon-Sorbonne and CNRS

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