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2008 AEC - Policy Reform and Aid Effectiveness in Africa
This paper re-examines the ‘good policy environment’ argument in aid effectiveness and allocation in Africa. It does so by controlling for the role of social cohesion and its interplay with aid. The empirical results indicate that once we account for the role of social cohesion the impact of policy disappears. This casts doubt on the conclusions in Burnside and Dollar (2000) and the policy lessons derived from their findings. Our results have important policy implications as they suggest that conditioning aid allocation on ‘good policy environment’ may not necessarily lead to higher aid effectiveness.