The increasing selectivity of foreign aid, 1984-2003

The Monterrey Consensus includes the idea that foreign aid is more effective when targeted to countries with sound institutions. We examine the extent to which foreign aid, bilateral and multilateral, is selective in terms of democracy and property rights/rule of law. We find that multilateral assistance is more selective than bilateral aid in targeting countries with good rule of law. Selectivity is a new phenomenon. During 1984-89, both bilateral and multilateral aid had significant negative relationships with rule of law; by 2000-03 this had shifted to a significant positive relationship for multilateral aid, and a positive but statistically insignificant relationship for bilateral aid. (c) 2006 Elsevier Ltd. All rights reserved.