Transcript Chapter 14

Norton Media Library
Chapter 14
Foreign Aid
Dwight H. Perkins
Steven Radelet
David L. Lindauer
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Chapter 14: Learning Objectives
1. Some on foreign aid: definition, decomposition, the major
donors and major recipients.
2.The controversies surrounding foreign aid including its
motivations.
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3. Three views on aid’s impact on growth and
development.
4.The issue of conditionality & the future of foreign aid.
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1.Foreign Aid: Introduction
“I have long opposed foreign aid programs that have lined the
pockets of corrupt dictators, while funding the salaries of a
growing, bloated bureaucracy” ... US Senator Jesse Helms, 2002.
Diverse views on Aid: James Wolfenson –World Bank: There is
need for more aid Senator Jesse Helms; no US aid should be
given to any country.
Massive Historic Aid: Marshall Plan during WW led by USA- made
a huge difference in European post-ww2 reconstruction
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Economist Views on Foreign Aid
Strong supporter: Jeffery Sachs and Joseph Stigltz
Others such as Chicago school conservative economists: do
not care for more aid
Case massive Foreign Aid Failure in Africa
Congo/Zaire, Haiti, Zambia, etc
Case success: Botswana, Korea, Taiwan, Mozambique,
Uganda, Tanzania.
There is mixed record of Aid effectiveness
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2.Donors & Recipient
• Foreign Aid comprises of financial flows,
technical assistance, commodities given by
one country to another.
• Two criteria: .
1. promote development and welfare- excluding
military aid
2. Provided as a grant or a subsidized loan
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Who Gives Aid
Mostly Industrial Countries (OECD)
Government Agencies such as: USAID, SIDA. etc
World Bank, IMF, UNDP, Regional Banks
Marshall Plan: The US committed 1.5% of GDP about 10
times as much US aid today.
US official development assistance now is 0.16% of
GDP.
Marshall plan was successful because of presence of
skilled workforce, financial & legal institutions
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Search for Aid data…. Who gets Aid and who gives Aid
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Arab spring effect?
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The Commitment to Development Index: Ranking of quality
of their Aid policies
Ranking of 21 richest countries by CDI criteria
1. Foreign aid quantity
2. Trade policies
3. Foreign Investment Policies
4. Environmental Policy
5. Security including peace keeping operations
6. Migration-ease of migration
7. Technology-support of Research & Development
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The Motivations for Aid:
Why do nations give aid?
Foreign policy objectives & political alliances
Poverty reduction
Country size; Smaller states more aid
Look for commercial or trade ties
Enhancing Democracy??
Fighting Global Terrorism? Strategic aid.
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The Effect of Aid on Growth and Development
Generally, there are 4 Broad of Objectives of Aid
1. Stimulate economic growth through building
infrastructure, supporting sectors such as
agriculture, technology, new ideas
2. Strengthening education, health, political systems,
environment
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3. Food aid and other commodities in case of
emergencies and disaster
4. Economic Stabilization following natural or manmade shocks…
- Examples??
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Types of Aid
Emergency and humanitarian negatively associated with growth
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Aid that has effect over a long period of time- on health,
education, democracy
Aid that directly affects growth inlcudes; roads, electricity,
agricultural support, etc
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Q: Will aid really boosts growth?
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Aid, Growth, and Development
1. Stimulate economic growth: building infrastructure, supporting
productive sectors: agriculture, new ideas, new tech
2. Other development objectives: education, health, environmental
and political systems
3. Helping in natural disasters ad humanitarian crises
4. Help stabilizing economies after economic shocks
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Three Views of Aid- The AID debate
• View 1; On average Aid has a positive impact on
economic development, but not always- especially
on health, education,
• View 2: Has little or not effect may actually
undermine growth and development. For example
the effect of Food Aid may lower domestic food prices
and displace local production,, Create Aid
dependency
• View 3. The Effect is conditional depending on
Good policies, institutions and Good GovernanceExample Aid to Botswana and Korea has been
effective.
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http://www.forbes.com/sites/realspin/
2012/09/25/4-6-trillion-later-foreignaid-remains-an-economic-somnolent/
The relationship between the foreign aid received per capita in 131 developing
countries during 2000-2005 and the rate of economic growth in those
countries (2005-2010) as measured by the % increase in gross national
income.
There is a noticeable negative correlation, that is, increased flows of foreign
aid are associated with somewhat lower economic growth. While this does not
prove that foreign aid actually impedes growth, it is powerful evidence that
such aid does little or nothing to improve it.
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By: WILLIAM EASTERLY
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Toward Aid Effectiveness
• Country Selectivity – Give aid to more
democratic with good governance &least
corruption
• Harmonize and coordinate better- several
hundred aid missions are in Tanzania and
Ethiopia
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• Result based management- allocate to
projects that show results, modify existing
programs, Learn from experience , better
information
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Motivations & Objectives of
Aid
to support foreign policy and political alliances,
to raise income levels and reduce poverty,,
to strengthen commercial ties,
to reward newly democratic countries.
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