Why are aid projects less effective in the Pacific?

Abstract

Motivation: The Pacific is the world's most aid-dependent region, yet available data suggest aid projects are less effective on average in the Pacific than elsewhere in the developing world.

Purpose: This article examines the most likely explanations for lower aid project effectiveness in the Pacific. Explanations include poor governance, restricted levels of political freedom, poor economic performance, isolation, and small populations.

Methods and approach: Three approaches to causal mediation analysis are used to identify which explanatory variables best explain why aid projects are less effective in the Pacific. Aid project effectiveness data come from a multi-donor dataset of individual aid projects. Data on potential explanatory variables comes from a range of international datasets.

Findings: All three causal mediation approaches point to the isolation of many Pacific countries, alongside comparatively small populations, as being the main impediments to project effectiveness. These findings hold even with a suite of project traits being controlled for and within an analysis in which all the key country variables of interest are controlled for.

Policy implications: Project effectiveness in the Pacific appears to be primarily constrained by variables that cannot themselves be shifted (the region's countries cannot readily be made less remote or more populous). Improved project effectiveness in the Pacific will require donor practice to carefully adapt to the region's context. A structured process of donor learning will be needed.

Keywords: aid effectiveness; economic geography; the Pacific.

FIGURE 1

Probability of underperforming, Pacific projects and elsewhere Notes: data come from 1996 and thereafter. Data are from all donors with projects in the Pacific. Values are predicted probabilities of projects performing worse than the donor’s mean project in that year. Predicted probabilities come from logistic regressions. In the second panel, regressions are run with project traits controlled for.

FIGURE 2

Differing sectoral performance in the Pacific compared with elsewhere Notes: The figure shows the predicted marginal effect of the difference in average performance between the Pacific and elsewhere for each sector. Estimates stem from the regression results shown in Table 6.