The Role of Social Institutions in Determining Aid Effectiveness

Abstract

In recent years, scholars and policymakers have placed growing attention on the issue of aid effectiveness, that is, the efficiency of donor assistance in achieving stated economic and human development objectives. While research has tended to highlight the need for greater capacity building and improved governance as mechanisms to make aid 'effective', the social origins of such mechanisms have not been thoroughly examined. Using the latest cross-country indicator series on aid effectiveness from the OECD and the Indices of Social Development, hosted at the Institute of Social Studies in the Hague, this paper examines the determinants of effective aid spending, and finds a significant effect linking the quality of aid assistance to social institutions relating to public order and trust. These effects are verified when instrumenting social institutions by measures of state history, suggesting that long-term political development is the main source of public order and the presence of state institutions capable of effective management of aid flows.