Urban Investments and Rates of Return: Assessing MCC’s Approach to Project Evaluation

Resource Library | Author Jerry Kalarickal | Date October 2007

The Millennium Challenge Corporation (MCC) represents a new initiative in U.S. foreign assistance that targets foreign aid so that it has the greatest development impact. It calls for providing grants to partner countries who have agreed on a broad-based set of policies for achieving longer-term equitable growth. Only those countries that have demonstrated a commitment to good governance through their policy performance and reform will receive grants, and the distribution of these grants will be governed by MCC’s three core values: reward good policy; expect country ownership; and focus on results. The objective of this paper is to show that while the MCC approach represents an important and appropriate break with past approaches to development assistance, the resulting focus on easier-to measure Economic Rate of Returns (ERRs), impedes the program’s effectiveness and in many ways represents implementation decision rules which have the danger of turning a new approach to channel resources into what has been largely abandoned as ways of guiding development assistance.