Assessing Aid (World, Bank, 1998) is an important publication. It can be seen as a clear statement of World Bank policy on aid to developing countries. As noted on the back cover it is intended to bring to a broad audience the results of World Bank research on development policy issues, [to] take stock of what is known and is not known about these issues and contribute to the debate on appropriate public policies for developing economies' (our emphasis). Again on the back cover, eminent economists endorse the book. Alberto Alesina deems it the best and most comprehensive book on the eect of foreign aid' and advocates that managers of all aid agencies read it. Jan Gunning proposes that the analysis `shows that aid eectiveness can be vastly improved through simple, but radical, changes in aid policies' and also advocates that all donors read it. Clearly it is important, but what does it say? More importantly, does it really take stock of what is known and is not known? This Policy Arena addresses these two questions, especially the latter.
Assessing Aid is concerned with the eectiveness of development aid in promoting growth and reducing poverty. The message it presents is clear, usually expressed in short highlighted phrases such as aid works in a good policy environment' ( p. 2) or assistance must be targeted more eectively to low-income countries with sound economic management' ( p. 4). The basic argument is simple. Aid has tended to be ineective, in the sense that there is little evidence of a positive association between aid and growth. The exception to this is in countries that exhibit good policies. Thus the claim that aid only works (in promoting growth) in a good policy environment, and the implication drawn is that aid should be reallocated largely towards such countries. The evidence, based on background econometric studies, is presented in Chapter 1 `Money matters ร in a good policy environment'. The two most important conclusions that emerge from this chapter are, ยฎrst, that good policy is a prerequisite for aid to be eective and, second, that by reallocating aid from countries with bad