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Mr. James M. Boughton and Mr. Alex Mourmouras

which the IFI is not involved, the recipient country government is concerned with the impact of its choice of economic policy distortions on national welfare and political contributions, ignoring the externalities that its choices generate for the rest of the world. The policymaker’s choice of economic policy distortions maximizes its objective function, which differs from national welfare by an amount equivalent to the political contributions it receives from an organized domestic interest group. In the domestic political equilibrium the government balances its

Boriana Yontcheva and Mrs. Nadia Masud
This paper assesses the effectiveness of foreign aid in reducing poverty through its impact on human development indicators. We use a dataset of both bilateral aid and NGO aid flows. Our results show that NGO aid reduces infant mortality and does so more effectively than official bilateral aid. The impact on illiteracy is less significant. We also test whether foreign aid reduces government efforts in achieving developmental goals and find mixed evidence of a substitution effect.
Boriana Yontcheva and Mrs. Nadia Masud

indicators whose improvement is part of the MDGs. We will test the impact of aid on infant mortality and adult illiteracy. Because they differ in both motivation and implementation, we distinguish between bilateral aid and nongovernmental aid. We also test whether foreign aid reduces the efforts a recipient country government makes in fighting illiteracy and infant mortality. We therefore assess the impact of aid on the share of social spending of recipient countries. III. M illennium D evelopment G oals , H uman D evelopment I ndicators , and O ther V

Mr. Tito Cordella and Mr. Giovanni Dell'Ariccia

T he most indebted countries are among the worst performers in terms of human development indicators. 1 Starting from this stylized fact, the donor community (multilateral agencies, nongovernmental organizations (NGOs), and bilateral donors) seems to agree on two basic principles. First, some debt relief/aid is necessary to reduce the human development divide between “North” and “South.” 2 Second, since aid is fungible, and recipient country governments are sovereign, nothing ensures that the resources generated by an aid program will be devoted to

International Monetary Fund

to identify—on the basis of their own policies and programs—what they consider to be aid for trade. Responses are expected in September 2007, with a view to serving as an input to the first Annual Global Review of Aid for Trade, to be hosted by the WTO on November 20-21 2007. The WTO and the OECD have also initiated a technical group on monitoring the framework on aid for trade, with membership from bilateral and multilateral development agencies, as well as a small number of recipient country governments. The World Bank is actively engaged in these efforts, with a

, UNICEF, UN Fund for Population Activities, UNAIDS, GAVI Alliance, GFATM, and the Gates Foundation). Redressing health inequalities . Donors and recipient country governments must strengthen cooperation in defining and advancing developing country health agendas. Much international effort aims to tackle specific diseases, but the underlying causes of health problems must also be addressed. The weakness of health systems is a major factor behind ongoing health deficits in poor countries. Broader structural issues that affect health also require increased attention

Hulya Ulku and Mr. Tito Cordella
Under what conditions should grants be preferred to loans? To answer this question, we present a simple model à la Krugman (1988) and show that, for any given level of developmental assistance, the optimal degree of loan concessionality is positively associated with economic growth if countries are poor, have bad policies, and high debt obligations. We then test our model by estimating a modified growth model for a panel of developing countries, and find evidence supporting our predictions. Finally, we assess the determinants of current aid allocations and find that the degree of concessionality is negatively correlated with countries' levels of development.
Mr. James M. Boughton and Mr. Alex Mourmouras
IMF lending is generally conditional on specified policies and outcomes. These conditions usually are negotiated compromises between policies initially favored by the Fund and by the country's authorities. In some cases the authorities might be satisfied enough with the outcome to take responsibility for it ("own" it) even though it was not their original preference. In other cases, they might accept the outcome only to obtain financing, in which case weak commitment might lead to poor implementation. This paper reviews the theoretical basis for the importance of ownership, summarizes what is known about its empirical effects, and suggests a strategy for strengthening it.