CIGI Research Blog

It has often been argued that states in post-conflict situations require sound policy advice, added to financial and technical assistance.   Anke Hoeffler and Paul Collier attempt to analyze in their paper how systematically different is the absorptive capacity for aid in post-conflict countries.   Research done on this subject suggests that absorptive capacity is no greater than normal in the first three post-conflict years.   In the rest of the first decade, this increases to more than double its normal level.   Thus, a more balanced approach would require a consistent flow of aid throughout the first decade.   However, aid has often not increased in post-conflict settings and has even decreased after the first few years following the reconstruction period.

The paper also seeks to analyze as to whether the contribution of policy to growth is methodologically different in post-conflict states.   The authors found that growth is more susceptible to policy in post-conflict areas.   In looking at different types of policies, the authors argue that social policies are adherently important, relative to macroeconomic policies.   However, in post-conflict situations, social policies have not received either the attention or the merit they deserve by governments.

In looking at the nature of aid, Paul and Anke argue that international responses to post-conflict situations tend, unfortunately, to be dictated by political aims and prioritization.   Nevertheless, since post-conflict situations often compete for the same pool of resources it is often argued that it is worth comparing the effectiveness of aid, relative to international development assistance, more broadly.  

Paul and Anke outlined the work done by Collier and Dollar, in the area of aid effectiveness in reducing poverty, to explain the importance of the interlinked relationship between aid, policy and growth.   They stress that aid is subject to diminishing returns, while its absorptive capacity largely relies upon the level of institutions and policy, outlined in the World Bank’s annual ratings - The Country Policy and Institutional Assessment.   Using this World Bank study, they contend that, for national governments in developing states to have the upper hand in reducing poverty, they should take into consideration the extent of poverty that exists, while making inroads on improving the level of income distribution among the general population.

However, they point out that the current World Bank’s study does not adequately take into consideration the precarious situation that most post-conflict societies find themselves in, following the discontinuation of hostilities.   Post-conflict countries tend to exhibit special needs from less-developed states.   The collapse of revenue and the destruction of infrastructure, as well as the disruption of civil administration, exacerbate the already delicate economic situation of the country which fuels endemic corruption even further.   Thus, the normal flow of aid could prove insufficient to adequately spur the necessary growth rate needed to reduce poverty and economic inequalities that helped fuel conflict in the first place, in many post-conflict societies.   Paul and Anke point out that these fragile states rather need temporary resources, in addition to the normal flow of aid allocated to them by the international community.   These resources, in the form of technical assistance and further directed foreign aid in targeted areas of the economy and administration, could help supplement the existing flow of aid, thereby sustaining consistent economic growth over the first decade of post-conflict recovery period required.   In turn, this can help reduce the probability of a return to civil unrest, whereby economic grievances could then be addressed.

Despite the shortcomings of normal flow of aid in substantially reducing poverty in post-conflict states, Anke and Paul argue that the absorptive capacity for aid in post-conflict countries is more than double that in normal situations, subject to sound policies and institutions.   They point out that any given post-conflict state on average experiences a temporary growth rate of approximately two percent, on top of any normal growth experienced during the period.   This is largely due to the trickle effect induced by an injection of economic aid into the national economies.   Thus, it is said that aid is more than twice as productive in post-conflict situations, despite the fact that policies in these states are largely viewed by donor agencies as relatively mismanaged and ineffective.

However, Anke and Paul, stress that the scope for effective aid absorption tends to occur over a number of years and is by any account not immediate.   Their analyses show that aid absorption is highest during the fourth to the seventh year following the end of hostilities.   For sound economic recovery to occur, aid volumes should consistently be increased for the first four years of peace and then gradually level off after a decade.   Unfortunately, this has not often been the case, given the prioritization of aid, based on political and bureaucratic considerations.   Often enough, the flow of aid is tied to the newsworthiness of a conflict and the post-conflict recovery phase that accompanies the signing of a peace treaty.

In the second part of their paper, Anke and Paul attempt to analyze to what extent the priorities, for the reform of governance, policies, and institutions, could be different in post-conflict settings from other developing states.   They looked at the pattern of post-conflict economic recovery and sought to explore just how aid affects growth differently in post-conflict settings.   Lastly, they examined how priorities between broad categories of policy from social, structural, macroeconomic and governance should be distinctive in post-conflict settings.  

For argument’s sake, aside for its impact on strengthening aid absorption, both author’s contend that policies are either less or more relevant for growth in post-conflict settings than in other situations.   They argue that policy matters far more in post-conflict states, due to that fact that it substantially enhances the effectiveness and delivery capacity of economic aid in the short-to-medium term.