Funding what the donor intended

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In the World Bank working paper titled "Fungibility and the flypaper effect of project aid: micro-evidence for Vietnam" released earlier this month Dominique van de Walle and Ren Mu ask about the degree to which the donors get what they paid for. The authors examine the World Bank project to rehabilitate 5,000 kilometers of district and commune level roads in Vietnam:

While rural roads have been extensively championed as poverty alleviation instruments by aid donors, rigorous impact assessments have been rare. […] Development assistance continues to be primarily project-based, particularly for infrastructure. The possibility of fungibility is routinely ignored in project work. Project staff often put enormous effort into project selection and appraisal. If fungibility is indeed the reality, then these efforts are wasted.

One way round this type of problem is output-based aid.  For more information about the internal assessment process of the World Bank Group projects visit the Independent Evaluation Group. For a more controversial view read William Easterly.

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