Handbook on the Economics of Foreign Aid
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Handbook on the Economics of Foreign Aid

Edited by B. Mak Arvin and Byron Lew

It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances. Several contributions provide new analytical insights or empirical evidence on different aspects of aid. As a whole, the book demonstrate how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.
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Chapter 2: Performance-based allocation (PBA) of foreign aid: still alive?

Patrick Guillaumont and Laurent Wagner


Performance-based allocation is a principle for the allocation of development assistance between countries, governed by a simple formula for several decades and considered as accepted wisdom, at least at the multilateral level. An official of one of the major donors once even said: ‘the PBA is a global public good’. In this chapter we explain first what is the meaning of this common principle, now declined in various formulas, second how it has generated major misunderstandings, undermining its legitimacy, third why the exceptions progressively brought to the principle have limited its impact, and finally which options are opened for the revision, the replacement, or the extension of the PBA.

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