Why are aid projects less effective in the Pacific?

In a new article published in the journal Development Policy Review (open access), Terence Wood, Sabit Otor, (both Development Policy Centre, Australia), and Matthew Dornan (World Bank) attempt to answer the question of why aid projects are less effective in the Pacific. In case you wonder whether the premise for their question is correct, here's their Figure 1, which shows how much less effective aid projects are in the Pacific, compared with the rest of the world:

Putting aside the fact that the y-axis for column graphs should start at zero (and so to the naked eye this figure very much overstates the difference between Pacific countries and other countries), the probability of an aid project under-delivering is significantly higher in the Pacific than in other developing countries. To answer the question of why, Wood et al. collate data on aid project effectiveness from a range of donors, including:

...the Australian Government Aid Program; the World Bank; the ADB; the UK’s Department for International Development (DFID) (now part of the Foreign, Commonwealth & Development Office); Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the German government’s development agency; KfW, the German government’s development bank; the International Fund for Agricultural Development (IFAD), a specialized agency of the United Nations; Japan International Cooperation Agency (JICA), the Japanese government aid program; and The Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM).

In each case, effectiveness is standardised to a score from one (worst) to six (best). Their dataset includes 4128 projects from 1996 onwards. They apply causal mediation analysis, which effectively means that in their primary analysis they add various plausible factors that might explain the Pacific's poor aid performance, one at a time, to a regression model that includes a dummy variable for the Pacific. They then look at the effect of adding each of these mediating variables on the coefficient of the Pacific dummy variable, and its statistical significance. Wood et al. find that:

First, when governance is added, the Pacific coefficient actually becomes larger (that is, its difference from zero becomes greater). This suggests governance is a moderating variable: because good governance boosts aid project effectiveness, and because governance is better in the Pacific, the finding indicates the negative effect of the Pacific on project effectiveness would actually be greater were it not for the positive influence of comparatively good governance. Adding the freedom variable reduces the magnitude of the Pacific effect considerably. Growth and GDP also reduce the magnitude but their impact is small. Remoteness, on the other hand, has a substantial impact, and for the first time the coefficient of the Pacific’s effect on project effectiveness ceases to be statistically significant. When population is included, the coefficient for the Pacific changes substantially again, actually becoming positive albeit not statistically significantly different from zero.

The fact the Pacific coefficient is effectively zero at the end of the analysis suggests the negative effect of the Pacific on project effectiveness is completely mediated by these variables.

In other words, aid projects in the Pacific are less effectiveness because of the remoteness of developing countries in the Pacific and their small population sizes. Wood et al. find similar results using two alternative methods of causal mediation analysis. Then, looking at how the characteristics of aid projects vary in effectiveness between the Pacific and other developing countries, they find that:

Although project duration and size have some impact on project effectiveness more generally, neither appears to have a differing impact on project effectiveness in the Pacific compared to the rest of the developing world. Indeed, the only variable for which any of the interaction terms is significant, is sector, and in particular humanitarian emergency work...

...no other sector’s performance differs between the Pacific and elsewhere in a manner that is statistically significant or in any way substantively meaningful. However, humanitarian projects do perform worse in a manner that is statistically significant.

One thing did concern me a little about the analysis. The Pacific countries are the most remote and smallest in population size, so it is possible that it isn't remoteness or small size that create the problems, but something else about the Pacific that is instead being captured by the remoteness and population size variables (that is, an omitted variable problem). That concern could have been allayed to some extent by showing that remoteness and population size were related to aid effectiveness when the Pacific countries were excluded.

Now, putting that aside and taking the results as given, the problem for aid agencies is that remoteness and small population size are not things that can be easily changed. It's not a question of changing the observable (and measurable) characteristics of aid projects, to make them more effective. However, Wood et al. are not so easily dissuaded, recommending that:

...as the main constraints to effective aid are constraints that cannot be shifted or which should not be changed, donors ought to focus foremost on adapting their practice. Successful adaptation is not likely to involve changes in sectoral focus or project size or duration, but rather working in a manner appropriate to giving aid in difficult circumstances...

More investment in building donors’ own expertise in the region will also likely help, as will more investment in gold standard evaluations that allow donors to learn from the specific challenges confronting their work in the Pacific.

That strikes me as a recommendation that could have been made without the necessity of going through the research exercise. It almost goes without saying that adapting practice to location conditions and building expertise in the region are important. In that case, aid agencies may simply have to accept that it will take more time and effort to conduct effective aid projects in the Pacific, and/or that those projects will not be as effective as they are in other developing countries.