We examine the impact of institutional quality and social capital on aid effectiveness. We find strong evidence that social capital and institutions enhance aid effectiveness. Moreover, once we account for the role of social capital and institutions, the impact of policies tend to disappear....

The paper builds on recent empirical evidence on the importance of strategic donor behaviour in aid allocation in order to develop a theoretical model where donor pressure on a recipient for influencing the aid disbursement of a multilateral institution is endogenously determined. Our...