May, Aid Effectiveness in the Caribbean: Revisiting Some Old Issues. P. Desmond Brunton

Transcription

1 May, 2000 CARIBBEAN DEVELOPMENT BANK Staff Working Paper No. 3/00 Aid Effectiveness in the Caribbean: Revisiting Some Old Issues P. Desmond Brunton Director Projects Department The views expressed in this document are those of the author and do not necessarily represent those of the Caribbean Development Bank.

2 CARIBBEAN DEVELOPMENT BANK Staff Working Paper Series No. 1/00 No. 2/00 No. 3/00 Comparative Vulnerability to Natural Disasters in the Caribbean, Tom Crowards Exchange Rate Crises and Capital Market Imperfections in Small Open Economies, Chris Crowe Aid Effectiveness in the Caribbean: Revisiting Some Old Issues, P. Desmond Brunton Caribbean Development Bank P.O. Box 408 Wildey St. Michael Barbados West Indies Internet: Telephone: (246) Fax: (246) Telex: WB2287 Cable Address: caribank Barbados

3 ABBREVIATIONS CDB - Caribbean Development Bank FDI - Foreign Direct Investment GDP - Gross Domestic Product ODA - Official Development Assistance ODF - Official Development Finance OECD - Organisation for Economic Co-operation and Development

4 ABSTRACT The majority of empirical studies on aid effectiveness have not been able to identify a statistically significant relationship between aid and economic growth. The recent work of the World Bank indicates that aid is only effective when the macro-policy environment is conducive to growth but that aid itself has not necessarily stimulated the adoption of good policies. Another recent study suggests that the most important determinant of aid effectiveness is the vulnerability of the recipient country to external economic shocks and natural disasters. The vulnerability issue is of particular significance in the Caribbean since six of the ten most vulnerable countries in the world are small Caribbean countries. The importance of the policy environment means that effectiveness can be improved if aid is used to support the required policy reforms and it is important to take both economic and social policies into account. A coordinated approach to the development process with all donors working in partnership with each other and with the recipient country is a critical requirement for aid effectiveness but, to date, effective coordination has been elusive. Because multilateral institutions tend to be less concerned with political or strategic objectives, the directing of more aid through such institutions may enhance effectiveness.

5 Aid Effectiveness in the Caribbean: Revisiting Some Old Issues 1 The Context What is Aid? Foreign Aid, or the more descriptive term official development assistance (ODA), is usually defined as grants (including debt forgiveness) plus concessional loans that have at least a 25 percent grant component. Aid is thus a subset of official development finance (ODF) - all financial flows from developed country governments and multilateral agencies to the developing countries. 2 The justification for aid has always involved a compromise between two potentially conflicting objectives: the encouragement of sustainable economic development in the recipient country (the altruistic objective) 3 and the promotion of the political and strategic interests of the donor. Recognition of these distinct objectives is important for aid, whatever its altruistic aims, will only exist if it also serves the legitimate, albeit more selfish agenda of the donor (Jonckers, 1996). The economic rationale for aid, until relatively recently, was based on a Harrod-Domar type of growth model. In this model it is premised that economic growth in underdeveloped countries is constrained by low domestic savings and inadequate foreign exchange earnings and that private capital flows are not adequate because of market failure. Aid is thus used to fill the financing gaps (i.e. the savings gap and the foreign exchange gap) between domestic savings and the investment needed to achieve a sustainable rate of growth. The relationship between aid and growth is not as clear-cut in the more contemporary growth models, but the notion of aid as a means of helping a country overcome resource constraints is still a central concern. Trends in Aid Flows During 1970s and 1980s aid flows 4 to developing countries increased steadily, moving from around US$18 billion in 1975 to close to US$63 billion in Since 1991, however, there has been a significant decline in aid flows (Figure 1). A number of factors account for this decline, all of which relate to the changing political context of development assistance. Firstly, the requirements of the transition economies of Eastern Europe have resulted in a certain degree of aid diversion away from traditional recipients. 5 Secondly, the market failure rationale for aid is less relevant in the context of the significant increases in private capital flows to developing countries. Thirdly, the end of the cold war means that the security arguments are also less relevant. And finally, fiscal difficulties in OECD countries coupled with the seemingly ineffectiveness of aid, has reduced public support for ODA. The Caribbean countries have not been immune to the declining pattern of aid flows. Aggregate data for 10 Caribbean countries 6 indicate net ODA peaking in 1991 at around US$688 million and declining to US$212 million by 1997 (Figure 2). This Caribbean experience with ODA flows during the 1 This is a revised version of a paper presented at CARICAD/CaMDA Fourth Annual Caribbean Policy Forum: Development Cooperation Management and Policy Issues for Aid Effectiveness, January 13-14, 2000, British Virgin Islands. 2 A distinction between ODF and ODA is not always made. This may not be of much practical significance as the effectiveness arguments apply to both types of flows. 3 Even the altruistic objective may embody donor self-interest, when it is rationalised that the economic and political security of the donor would be improved if the economic development of the recipient economy were enhanced by aid. 4 Technical cooperation grants are usually not included in aid flows. 5 ODA data does not include assistance to the transition economies of Eastern Europe, which is referred to as official aid (OA). Increased OA has only partially offset the decline in ODA to other developing countries. 6 The 10 countries are: Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts & Nevis, St. Lucia, St. Vincent & The Grenadines and Trinidad & Tobago.

6 s is significant for whereas the overall decline in ODA has tended to be concentrated in large countries (Collier & Dollar, 1999) the rate of decline to the Caribbean has been higher than for the rest of the world. The major decline actually occurred in 1992, and since then, apart from an increase in 1993, ODA has remained relatively constant at around US$200 million per year. Significantly also, net ODF has exhibited a more drastic decline moving from close to US$710 million in 1991 to under US$17 million by Figure 1: Net Official Long-term Flows to Developing Countries US$ Billions ODF ODA Source: Global Development Finance, 1999 Figure 2: Net Official Long Term Flows to Caribbean US$mn ODF ODA Source: Global Development Finance, 1999 The pattern of aid flows to the Caribbean could also be viewed in relation to the total net resource flows over the same period (Figure 3). The decline in aid flows is almost entirely the result of the fall-off in net bilateral flows, which moved from US$324 million in 1990 to negative US$43 million in Multilateral flows were relatively constant over the same period. On the other hand, private flows, mainly in the form of foreign direct investment (FDI), literally exploded, increasing from US$154 million

7 - 3 - in 1990 to in excess of US$1 billion by The global increase in private capital flows to developing countries is one explanation for the decline in aid flows and probably also explains the pattern in the Caribbean. But this highlights one aspect of the aid flow problem; for of the approximately US$5.4 billion in FDI that flowed to the Caribbean between 1990 and 1997, 77% went to 3 countries (Trinidad & Tobago 43%; Jamaica 24%; Guyana 10%). This pattern is similar to the situation internationally where, in 1997, around 70% of total FDI went to 10 countries. Figure 3: Net Resource Flows to Caribbean Total Bilateral Private Multilateral US$ millions (200.0) Global Development Finance, 1999 The Effectiveness of Aid Despite the significant aid flows to developing countries over the last three decades, the preponderance of evidence indicates that aid has not had a significant impact on economic growth. (Tsikata, 1999). Mosley, Hudson and Horrel (1987 & 1992) suggest the impact of aid on growth is specific to a country and to its stage of development and that this helps to explain the limited association between aid and growth in cross-sectional studies. They propose four stages of aid effectiveness which relate to the capacity of the country to make use of aid: Low aid, Low Growth: near subsistence economy, isolated due to war, political instability or mismanagement; High Aid, Low Growth: increased aid flows have no immediate impact due to gestation lags and other similar factors; High Aid, High Growth: aid remains high and become effective as lags are overcome; Low Aid, High Growth: aid diminishes but growth continues at a high rate because the economic structure is conducive. The World Bank has recently made an important contribution to the empirical evidence on aid effectiveness (World Bank, 1998) based largely on the work of Burnside and Dollar (1997). These researchers use data for 56 developing countries and six four-year periods to construct an index for policies (incorporating fiscal surplus, inflation and trade openness) and interact this index with aid in an

8 - 4 - econometric model. The major finding is that aid has a positive impact on growth in countries with good fiscal, monetary and trade policies and that this effect goes beyond the direct impact that the policies themselves have on growth. However, there was no evidence (at least in the statistically significant sense) to suggest that aid was responsible for the good macroeconomic policies. This lack of a nexus between aid and policies is probably explainable by the fact that most studies on the determinants of aid indicate that aid flows primarily reflect donor s interest rather than recipient needs (Boone, 1996). As aid has always been rationalised on the basis of bridging financial gaps, some of the empirical studies on aid effectiveness have focussed on the impact of aid on domestic savings and investment. Here too the results are mixed with some indication that aid has had a positive effect on domestic saving and investment where adjustment efforts were sustained (Tsikata, 1999). Feyzioglu, Swaroop and Zhu (1996), using a sample of 14 developing countries over 20 years, found the following relationships with respect to aid and public investment: Total government spending increases by the full amount of the ODA; About 30% of ODA goes to government capital expenditure and 70% to recurrent expenditure; About 20% of ODA goes to public investment; and ODA did not crowd out private investment. These findings are in contrast to those of Boone (1996) who suggests that, on average, aid has very little impact on investment, but instead raises consumption (both public and private) by almost the full amount of the aid. 7 Significant new research done by Guillaumont and Chauvet (1999) postulated that aid has accelerated growth only in the more vulnerable countries, and that aid effectiveness (in growth terms) had not been increased by a better policy environment. The authors do not discount the importance of good policies on growth but suggest the impact of such policies is not increased by aid, per se. In essence the authors suggest that the most important determinant of aid effectiveness is the vulnerability of the recipient country to external economic shocks and natural disasters. In some ways this is similar to stages of effectiveness notion suggested by Mosely et al (1992), but its significance lies in the suggestion that aid helps the recipient country to overcome some of the disadvantages of vulnerability. Most donors cite poverty reduction as the underlying objective for aid. Empirical work indicates that growth and poverty reduction are highly correlated across countries (Ravallion & Chen, 1997; Bruno, Ravallion & Squire, 1998). It follows that if aid accelerates growth it would also result in improvement in social indicators. Burnside and Dollar (1998) find that in a good policy environment aid has a positive impact on poverty reduction (as measured by infant mortality) though the effect is not as strong statistically as it is for growth. However, Boone (1996) finds no relationship between aid and human development indicators such as infant mortality though he does suggest that aid can be effective when it is conditional on policy Small States and the Vulnerability Issue Global trade liberalisation and financial integration (i.e. globalisation) have presented unique development challenges to small states. The significance of these challenges in a rapidly globalising 7 In fact, Boone (1996) suggests that estimated parameters in his model show that the marginal propensity to consume from aid is one, and the marginal propensity to invest from aid is zero.

9 - 5 - economy has encouraged a detailed look at the special circumstances of small states. A Commonwealth Secretariat/World Bank Joint Task Force on Small States 8 (Commonwealth Secretariat/World Bank, 2000) identified the following characteristics of small states as having important implications for development: Susceptibility to natural disasters - because of small size such natural events are pervasive affecting the entire population and economy. Openness - because of the heavy reliance on external trade, small states are especially vulnerable to external economic shocks. Weak institutional capacity - resulting from the higher costs associated with the provision of public services due to indivisibility. Limited diversification - in production and exports due to the narrow resource base and small domestic markets. Remoteness - from markets with implications for transport costs. Limited access to external capital - because international capital markets have high-risk perceptions of small states. Poverty with levels that tend to be higher in small states and income distribution more uneven, in comparison to larger states. These characteristics define the special development challenges facing small states. In particular, they highlight the importance of the vulnerability of small states to external exogenous shocks, be they economic, political or environmental. This vulnerability is manifested in high income-volatility and small states have much less capacity to insure against adverse shocks to income, since risk pooling at the national level is not feasible 9. High income-volatility is important because it reflects welfare changes, can lead to uncertainty causing depressed investment expenditures and hence reduce future economic growth and may undermine social cohesion and social stability (Bourne, 2000). Limited institutional capacity and the high unit cost of governance exacerbate vulnerability and present additional challenges to small states as they try to adjust to the challenges of globalisation. Indeed, it is the vulnerability of small states that underlie the arguments that they need adequate time for adjustments as well as for resources to support domestic efforts to adjust to the New World market conditions and accommodate the associated transitional costs of globalisation. In other words, vulnerability suggests the need for more rather than less aid to support the transition process even when per capita income levels suggest otherwise. The vulnerability issue is of particular significance in the Caribbean, as Crowards, (1999) has shown that the most vulnerable countries in the Caribbean rank among the most vulnerable countries in the world since at least six of the ten most vulnerable countries are small Caribbean Countries. The study also suggests that CDB s borrowing member countries is the most vulnerable group, especially in terms of export concentration and reliance on direct foreign investment. 8 Using a standard of 1.5 million people, the task force identifies 44 developing countries as small, twelve of which are in the Caribbean. 9 The limited access to international capital markets further reduces small states ability to engage in risk diversification as a means of overcoming income volatility.

10 - 6 - Enhancing Aid Effectiveness The Policy Environment In light of the declining aid flows, the questionable impact of past aid provisions and the vulnerability of the small island states of the Caribbean, what could be done to enhance the effectiveness of aid in the Region? The World Bank finding that aid works in a good policy environment is intuitively attractive, but to some extent it begs the question. For in a situation of high vulnerability to external shocks, policy can easily be derailed. Indeed, the very existence of vulnerability suggests that policy formulation and implementation can be affected 10. Indeed, many Caribbean countries have experienced unpredictable changes in policy direction as a result of external shocks or natural disasters. This is not to say that policy is unimportant but rather to suggest that aid should be used to facilitate the implementation of good policy by helping to overcome some of the adverse effects of vulnerability. The World Bank s notion also does not reflect the fact that there are many ambiguities surrounding what is sound macroeconomics and that Macroeconomics is simply too uncertain to attach deterministic weights to indicators of macroeconomic policy and performance (Bird, 1999). The majority of the contemporary growth literature focuses on the importance of macroeconomic policies. Without discounting the significance of the relationship between economic growth and social development, very little consideration is given to the importance of social policies. This probably stems from the fact that the approach to social development (generally and in the Caribbean) is still a residual one, in the sense that social issues are assigned a benefit or outcome status only (Le Franc, 2000). But more recent thinking, based on some empirical work, indicates that real development only occurs when the interaction between social and economic development is clearly established. There is the notion that aid, to be effective, must recognise this interaction and where possible must facilitate it. Development as a Holistic Process Perhaps the most important way that aid effectiveness can be enhanced is by adopting a holistic view of the development process. Sustainable development in small vulnerable states requires a comprehensive approach for tackling the development tasks. The approach must be tailored to the specific circumstances of the recipient country as the one size fits all type of aid prescriptions has proven to be ineffective. The development framework so formulated must be seen as a partnership between the country and the donors and partnership must be practised at all levels macro, sectoral and micro or project level. In designing developmental interventions it is imperative that explicit consideration be taken of the social, economic, cultural and political dimensions. For aid can be counterproductive if all these dimensions of development are not reconciled. A critical requirement for this type of approach to aid provision is substantially improved coordination among donors. In effect, donor coordination is a logical extension of the development partnership approach but it is significant how elusive effective coordination has proven 11. In part, this stems from the conflicting nature of aid objectives. For if a donor is concerned with meeting political or strategic objectives, coordination with other donors to meet the altruistic objective would hardly be given high priority. 10 Guillaumont & Chauvet (1999) suggest that a major impact of external shocks is to increase the difficulty in maintaining sound macroeconomic policy and even to induce wrong policy choices as, for example, when export instability leads to over investment or increased public sector deficits. 11 It is important to make the distinction between donor coordination, which is the responsibility of the donors and aid coordination, which is the responsibility of the recipient government.

11 - 7 - It can be argued that in the small states of the Caribbean, donor coordination is an even more critical requirement for aid effectiveness because of the limited institutional capacity of the public sectors in these countries. Slusher and Blackman (2000) have suggested that the lack of donor coordination in the Caribbean has significantly increased aid transaction costs thus reducing effectiveness. A cursory review of the aid environment in the four Windward Islands revealed that there were some 33 separate bilateral and multilateral institutions providing aid resources. This results in a plethora of highly disparate aid delivery systems which places overwhelming demands on the already overburdened administrative capacity and is hardly conducive to aid effectiveness. Multilateral vs. Bilateral Aid Some empirical work indicates that multilateral aid flows are less governed by political or strategic considerations than bilateral aid. 12 Does this imply that aid effectiveness could be improved by directing more aid funds through multilateral institutions and less bilaterally? It is generally well accepted that in an era where national sovereignty is highly prized and zealously guarded, [multilateral] conditionality is politically more palatable to all involved (Rodrik, 1995). And because of the largely non-political nature of multilateral institutions, negotiations with recipients can be maintained at the technical and economic level. Traditionally, a sizeable proportion of bilateral aid has been tied that is the aid funds must be used to procure goods and services from the donor country. A number of studies have shown that the limits on competition implied by tying increased the cost of aid-financed transactions by between 10 and 30 percent. Tied aid can also lead to adoption of inappropriate technology thus significantly reducing the long-term benefits of the aid-financed investment. Reducing the proportion of tied aid is thus an important way to improve the effectiveness of such aid. 13 Multilateral funds are also tied, but because of the wide membership of these institutions competition and technological appropriateness are usually not issues. However, the relatively limited membership of a small regional multilateral bank like the Caribbean Development Bank (CDB) 14 does suggest that if procurement is restricted to members, competition may be affected and the effectiveness of CDB funds reduced. The potentially greater effectiveness of multilateral institutions as channels for aid notwithstanding, these institutions have come under increasing pressure in recent years. For example, there have been questions about the continuing relevance of multilateral lending, in the face of the significant increase in private capital flows and in a situation in which the majority of aid (upwards of 75%) is provided bilaterally. The reluctance of most donors to use multilateral channels is partly a result of the fact that despite the popular belief that aid is primarily motivated to assist the poor, substantial evidence points to political, strategic and welfare interest of donor countries as the driving force behind aid programs (Boone, 1996). 12 Rodrik (1995) though Gang & Khan (1999) give a different perspective indicating that bilateral aid may be better for development than multilateral aid. 13 The World Bank (1999) indicates that the share of bilateral aid that is fully or partially tied fell from 50% in 1979 to about 20% in CDB s membership comprises the following countries: Borrowing Members Anguilla, Antigua & Barbuda, The Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Jamaica, Montserrat, St.Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, Trinidad & Tobago, Turks & Caicos Islands; Non-Borrowing Members Canada, China, Colombia, France, Germany, Italy, Mexico, United Kingdom, Venezuela.

12 - 8 - Sectoral Allocation of Aid Funds The development experience over the past 3-4 decades clearly indicates that there are some activities that are appropriate for government e.g. the provision of social, administrative and economic infrastructure; and there are other activities that a best left to the private sector e.g. directly productive activities. For a variety of reasons public sector involvement in directly productive activities has been inefficient and, at times, resulted in significant resources misallocation. The focussing of aid resources to public sector goods and services would help to improve its effectiveness. Fungibility and Aid Effectiveness The majority of aid funds are used to finance specific projects. On the surface it would seem logical that one way to improve aid effectiveness, is to ensure that the projects financed are effectively implemented and meet the development objectives. But the fungibility of aid means that the real question is whether the project would have been financed without aid. In other words, if a donor provides financing for a project in say the education sector, would the government simply reallocate its other expenditures thus keeping the total education spending to the same level it would have been without the aid. And would the reallocated expenditure be used for investment in another sector or consumption or tax reduction? Studies have shown that fungibility varies considerably across countries and sectors. It is also significant that fungibility is less of a problem in small countries (such as in the Caribbean) because aid funded projects tend to be large relative to GDP. But the existence of fungibility means that any assessment of aid effectiveness must take into account the overall public spending programme. And there is the view that once a government demonstrates efficiency and effectiveness in its overall spending, aid would be more effective if it is provided on a programme or budgetary support basis rather than on a project basis. Kanbur, Sandler and Morrison (1999) argue for a common pool approach to the delivery of aid resources and an end to the project-based approach that is presently the major delivery mechanism. They suggest that donors cede control to the recipient country government (Kanbur et al, 1999) for the actual implementation of development projects, while maintaining general dialogue (with the government and each other) to advance their own perspectives of development strategy. Conclusions The changing political context of development assistance, as manifested in the end of the cold war, the apparent ineffectiveness of aid in the face of OECD fiscal difficulties and the significant increase of private capital flows to developing countries, has resulted in a significant decline in aid flows to the Caribbean. The need to increase the effectiveness of aid in the Region is thus even more critical. But the majority of empirical studies on aid effectiveness have not been able to identify a statistically significant relationship between aid and economic growth The recent work of the World Bank suggests that aid is only effective when the macro-policy environment is conducive to growth but that aid itself has not necessarily stimulated the adoption of good policies. A study by Guillaumont et al (1999) raise some interesting issues of significance to small states because of the relationship between aid and vulnerability. It is suggested that the most important determinant of aid effectiveness is the vulnerability of the recipient country to external economic shocks and natural disasters. The vulnerability issue is of particular significance in the Caribbean since six of the ten most vulnerable countries in the world are small Caribbean countries. Vulnerability suggests the need for more aid even in the face of increasing per capita incomes.

13 - 9 - The complexity of the aid impact issue suggests that enhancing aid effectiveness is not straightforward. The importance of the policy environment means that effectiveness can be improved if aid is used to support the required policy reforms and both economic and social policies must be taken into account. A coordinated approach to the development process with all donors working in partnership with each other and with the recipient country is a critical requirement for aid effectiveness but, to date, effective coordination has been elusive. Because multilateral institutions tend to be less concerned with political or strategic objectives, the directing of more aid through such institutions may enhance effectiveness. At minimum, there is need to continue to reduce the proportion of aid that is tied to purchases of goods and services from the donor country. A reallocation of aid to the provision of social, administrative and economic infrastructure would also help to enhance effectiveness. And finally, the existence of fungibility indicates that aid effectiveness must be judged at both the micro or project level and at the macro level.

14 REFERENCES Bird, G. (1999), How Important is Sound Domestic Macroeconomics in Attracting Capital Inflows to Developing Countries?, Journal of International Development, 11, Boone, P. (1996), Politics and the Effectiveness of Foreign Aid, European Economic Review, 40, Bruno, M., Ravallikon, M., and Squire, L. (1998), Equity and Growth in Developing Countries: Old and new Perspectives on the Policy Issues, in V. Tanzi and K. Chu (eds), Income Distribution and High Quality Growth, MIT Press, Cambridge, Mass. Burnside, C., and Dollar, D. (1997), Aid, Policies and Growth, Policy Research Working Paper No. 1777, June, World Bank, Washington, D.C. Burnside, C., and Dollar, D. (1998), Aid, the Incentive Regime, and Poverty Reduction, mimeo, World Bank, Washington, D.C. Bourne, C. (2000), Economic Vulnerability, Income Volatility and Economic Resilience of Small States, mimeo, January, Caribbean Technical Committee on Small States, Caribbean Development Bank, Barbados. Crowards, T. (1999), An Economic Vulnerability Index for Developing Countries, with Special Reference to the Caribbean: Alternative Methodologies and Provisional Results, Draft for Consultation, March, Caribbean Development Bank, Barbados. Feyzioglu, T., Swaroop, V., and Zhu, M. (1996), Foreign Aid s Impact on Public Spending, Policy Research Working Paper No. 1610, May, World Bank, Washington, D.C. Gang, I.N., and Ali Khan, H. (1999), Foreign aid and fiscal behaviour in a bounded rationality model: different policy regimes, Empirical Economics, 24, Guillaumont, P., and Chauvet, L. (1999), Aid and Performance: A Reassessment, Preliminary Draft, mimeo, December. Jonkers, J. (1996), Re-compromising development aid for the future, The Courier,158 (July-August), Kanbur, R., Todd S., and Morrison, K.M. (1999), A Radical Approach to Development Assistance, Vol. 1, 2, LeFranc, E. (2000), Public Sector Reform and the Social Sector in the Caribbean, mimeo, April, Caribbean Development Bank, Barbados. Mosley, P., Hudson, J., and Horrell, S. (1987), Aid, the Public Sector and the Market in Less Developed Countries, The Economic Journal, 97 (September), Mosley, P., Hudson, J., and Horrell, S. (1992), Aid, the Public Sector and the Market in Less Developed Countries: A Return to the Scene of the Crime, Journal of International Development, 4(2), Rodrik, D. (1995), Why is there Multilateral Lending?, Annual World Bank Conference on Development Economics, May, World Bank, Washington, D.C. Slusher, A., and Blackman, C. (2000), Cost of Governance, mimeo, January, Caribbean Technical Committee on Small States, Caribbean Development Bank, Barbados. Tsikata, T.M. (1999), Aid Effectiveness: A Survey of the Recent Empirical Literature, International Economic Policy Review, 1,

15 World Bank (1998), Assessing Aid: What Works, What Doesn t, and Why, World Bank Policy Research Report, OUP, World Bank, Washington, D.C. World Bank (1999), Global Development Finance, World Bank, Washington, D.C.