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Does aid work by increasing growth and reducing poverty? The answer to this question, based on recent research on the macroeconomic impact of aid, evidence from micro studies and field experience, is, in general, a clear ‘yes’. Growth would clearly be lower than would otherwise have been the case in the absence of aid. 1 One can reasonably infer that by implication poverty would be higher without aid. Yet, it is also clear that the contribution of aid to growth differs across countries: An additional dollar of aid to one country does not have the same impact as an additional dollar to every other country. Burnside and Dollar (1997, 2000) found that aid works better in countries with better policy regimes or, more generally, that its effectiveness in promoting growth was contingent on the quality of these regimes. This very wellknown finding has been questioned by some subsequent research. 2 There is,