Evaluating the conditionality of external development assistance programs

This chapter evaluates the conditionality of development assistance in terms of its intended and unintended consequences. The chapter provides conceptual perspectives from the game theory, the public choice, the fiscal federalism, the political economy, the new institutional economics, and the new public management literature on the design of external assistance and its potential impacts. It shows how neglect of these conceptual considerations in the past resulted in the lack of effectiveness of aid conditionality and the waste of such assistance. It highlights the emerging consensus by the development assistance community on both the instruments of development finance and the associated conditions. It also briefly notes the progress, or lack thereof, for practice to conform to the emerging consensus. It cites examples where an inappropriate design of conditionality led to adverse consequences for project and program outcomes. Finally, the chapter provides lessons on major issues in the conditionality of development assistance.