The Pattern of Aid Giving: The Impact of Good Governance on Development Assistance (review)

Studies on foreign aid abound, analyzing its trends, effectiveness, and strategies for increasing its impact. Eric Neumayer,in The Pattern of Aid Giving: The Impact of Good Governance on Development Assistance, adds to the existing aid literature by focusing on a frequently overlooked aim of foreign aid—encouraging good governance. Mr. Neumayer, a lecturer in environment and development at the London School of Economics, analyzes data from all major donors during the period of 1991-2000 to address whether donors are more likely to choose countries with good governance as eligible to receive aid, and whether countries with good governance receive higher levels of aid.

The importance of good governance for donors—beyond its benefits for society in general—is that the presence of corrupt, abusive or ineffective government can undermine or nullify efforts to enact change through aid. A society with responsible, accountable leaders and respected institutions will achieve better results with foreign aid monies. Mr. Neumayer suggests that donors should focus on capacity-building programs to encourage better governance, coupled with funding selectivity to reward countries that have achieved good governance. His study reveals that so far, donors are not doing so: the results show that good governance was not a factor in influencing aid decisions in the 1990s. Given that many of the major donors profess to support good governance and respect for human rights, it is noteworthy that their funding decisions do not reflect this.

According to the author, few studies have looked at the majority of donors across the board, and few, if any, have focused on good governance. In contrast, this study covers all major individual donors: Japan, United States, Germany, France, Italy, United Kingdom, Canada, Denmark, Norway, Netherlands, Sweden (the latter five are referred to as "the so-called like-minded countries"), and the Arab donors (although only aggregate data is available for these donors). It also covers three multilateral donors: the United Nations, the European Community and the World Bank's International Development Association (IDA).

Mr. Neumayer spends a great deal of time explaining his choice of variables and the numerical results. For the less empirically-inclined, the most interesting parts of the book are the beginning background chapters and the conclusion, where he reveals the major findings and offers a brief parting plea for a greater focus on good governance by the major donors. Statistical training will help the reader through the technical chapters, but the substantive message of the book is understandable without mathematics. The author offers his conclusions in a bulleted list format with a few pages of further explanation.

Greater discussion of the author's conclusions and the issues they raise would complement the detailed statistical groundwork. Is Mr. Neumayer's prescription correct, to combine capacity-building and selectivity? Can donors even have an impact on something so complex and unwieldy as a country's quality of governance?

The book's description of the variables used as aid indicators is a useful primer in development analysis. The variables are divided into three major categories: good governance, recipient need, and donor interest. Good governance is defined more broadly than simply democracy and sound public sector management, to include variables such as political terror scales, respect for the rule of law, regulatory burden on the private economy, perceived extent of corruption, and share of government expenditures spent on military purposes.

Recipient need goes beyond per capita income, as the author points out the deficiencies of depending only on that measure. Most donors tend to focus on economic development, using income as a main indicator for recipient need, as opposed to other human development indicators. This study includes the Physical Quality of Life Index (PQLI), which is an aggregate of infant mortality, life expectancy and literacy. Unlike the human development index, it does not include per capita income, so it can be looked at...