Investigating the empirical relationship between Millennium Challenge Corporation aid eligibility criteria and development outcomes

Abstract

Established in 2004, the Millennium Challenge Corporation (MCC) is an American bilateral aid agency that enters five-year funding agreements with countries demonstrating sufficiently high scores in seventeen eligibility measures. Limiting eligibility allows the MCC to only fund countries that possess the institutional frameworks hypothetically necessary for growth and effective use of aid money. While these indicators have a large amount of theoretical support, there has - to date - been no empirical evaluation of whether or not they (grouped in this way) actually are significantly associated with positive health and economic development outcomes. Using fixed-effects models to analyze the relationship between lagged eligibility indicators and three development outcomes (infant mortality rates, life expectancy at birth, and GDP per capita), we find that the majority of indicators in low income countries show significant correlations, while the majority in lower middle income countries do not. Assessing the appropriateness of the median-based eligibility cutoffs, we conclude that while some of the data may support slightly stricter or more relaxed standards, the indicators are generally within acceptable ranges of expected marginal effects and political considerations may outweigh statistical concerns.