Foreign aid transaction costs
Frieda Vandeninden
#2012-007
The term 'transaction cost' has been widely mentioned in the recent
literature on aid effectiveness. In fact, the shift into the aid
delivery system (see e.g. the Paris Declaration on aid effectiveness)
has been justified among others by the high transaction costs generated
by the previous aid modalities. In this paper, we first want to
understand what the notion of transaction costs means in the context of
aid delivery and give a typology of the possible costs. We also develop
an analytical framework to evaluate them. This framework appears to be a
relevant tool to compare the effectiveness of aid modalities. We finally
apply this analytical framework in Mali: we look at the evolution of the
foreign aid transaction costs in two sectors (health and education) with
the introduction of sector-wide programmes.
Key words: aid modalities, aid effectiveness, transaction costs
JEL Codes: O20, O22, D23
