This report assesses foreign aid, pointing out that aid is as much a matter of knowledge as it is about money. It discusses the continuing role of financial transfers from rich to poor countries, despite the integrated capital markets; and the role of effective aid in supporting institutional development policy reforms, crucial to a successful development. The report summarizes the findings of recent World Bank research on aid effectiveness. Two key themes emerge from this report: the importance of timing, and the mix of money and ideas in making aid effective. When countries reform their economic policies, well-timed assistance can increase the benefits of reform and maintain popular support for them. On the mix of activities, it is found that money has a large impact, but only in low-income countries with sound management. Without a reform policy, finance has little impact. To be effective in equitable and sustainable development, a three-way partnership among recipient countries, aid agencies, and donor countries is needed. The recipient countries must move toward sound policies. Development agencies must shift away from total disbursements and the narrow evaluation of implementation, instead create high impact assistance. Donor countries should continue to support aid as well. The report concludes that properly managed foreign aid can make a big contribution toward improvement in people's lives.
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