The evidence is now overwhelming that most of the binding constraints in development are about institutions and institutional change. At the various interlocking levels of the development process in poor countries, the prevailing institutions – the formal and informal rules underpinning behaviour – undermine optimal use of the available financial and human resources.

This discussion note sets out a case for greater use of ‘arm’s length’ forms of aid building on some of the implications of recent research. It begins with a slightly fuller statement of why it is necessary to see institutional change as central to development.