Published online by Cambridge University Press: 02 December 2010
As highlighted in Chapter 4 of this volume, lower-income developing countries are not fully integrated in the global financial system. They are not only under-represented in major decision-making forums; they also remain largely excluded from the flow of substantial private external financing. To correct this architectural weakness, the international community has stepped in to provide substantial amounts of bilateral and multilateral official financing, either through grants or concessional lending. This concessional official financing – generally described as ‘development aid’ – makes up the lion's share of external capital flows to low-income countries (see Chapter 4, Table 4.1). The aid architecture thus remains an important subset of the global financial architecture. It can be defined as the set of rules and institutions affecting aid flows, including the way aid is allocated, the modalities through which it is delivered and its accompanying conditionality requirements.
Although only loosely linked to changes in the overall global financial architecture, the aid system over the last few years has been witnessing a transformation, with policy changes at both the bilateral and multilateral donor levels and actions at the level of individual recipient countries. Overall, these changes aim to considerably improve the effectiveness of aid, to the extent that aid scholars refer to a ‘paradigm shift’ (Renard 2006). We thus aim to document how changes in this subset of the overall international financial architecture have affected actual behaviour.