The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that since 1987, eligibility for aid from the International Development Association (IDA) has been based partly...

This paper shows that the increased policy-selectivity of aid allocations observed in recent years provides recipient countries an incentive to improve policies. The paper estimates that a change in the World Banks Country Policy and Institutional Assessment policy index from 1.5 to 2 for a...