This paper by Paul Collier and David Dollar from the World Bank's Development Research Group examines the allocation of aid and its impact on poverty reduction. The authors derive a poverty-efficient allocation of aid, which aims to maximize the reduction in poverty, and compare it with the actual aid allocations. They find that the current allocation of aid is significantly different from the poverty-efficient allocation. In the efficient allocation, aid is tapered in with policy reform, targeting countries with severe poverty and adequate policies. In contrast, the actual allocation tapers out with reform, often favoring countries with better policies but less severe poverty. The paper also explores the diminishing returns to aid and the relationship between aid, policy, and growth. It concludes that even with the current allocation, aid is effective in lifting around 16 million people out of poverty annually, but a poverty-efficient allocation could increase this number to around 30 million. The authors suggest that reallocation of aid, rather than tripling aid budgets, could be a more politically feasible way to significantly enhance poverty reduction.This paper by Paul Collier and David Dollar from the World Bank's Development Research Group examines the allocation of aid and its impact on poverty reduction. The authors derive a poverty-efficient allocation of aid, which aims to maximize the reduction in poverty, and compare it with the actual aid allocations. They find that the current allocation of aid is significantly different from the poverty-efficient allocation. In the efficient allocation, aid is tapered in with policy reform, targeting countries with severe poverty and adequate policies. In contrast, the actual allocation tapers out with reform, often favoring countries with better policies but less severe poverty. The paper also explores the diminishing returns to aid and the relationship between aid, policy, and growth. It concludes that even with the current allocation, aid is effective in lifting around 16 million people out of poverty annually, but a poverty-efficient allocation could increase this number to around 30 million. The authors suggest that reallocation of aid, rather than tripling aid budgets, could be a more politically feasible way to significantly enhance poverty reduction.