This working paper has been prepared within the UNU-WIDER project 'Foreign Aid': Research and This paper confronts three conundrums. First, does the relationship between aid and growth fade over time when aid is successful? Second, why are aid inflows neglected in the literature on growth...

The issue of introducing a vulnerability indicator in an aid allocation formula such as the Performance Based Allocation (PBA) used by several Multilateral Development Banks (MDBs) has been discussed for a long time. Three reasons make it particularly desirable to now reconsider the issue.

Developing country performance with respect to economic policies and institutional behaviour is a common criterion for the allocation of aid among recipient countries. This paper questions the manner in which performance is used in this regard, arguing that performance is too narrowly defined. A...