Transcript Steven Radelet

New Directions in
Foreign Aid
Steven Radelet
Center for Global Development
June 6, 2005
Some Criticisms of Aid
1. No effect on growth and
development
2. Poorly allocated
3. Too many objectives
4. Too bureaucratic
5. Too little local ownership or
participation
6. Lack of harmonization &
coordination
7. Not performance-based
8. Too little funding, and too little
predictability in funding
Three Views on Aid and
Growth
• No relationship, or a negative
relationship
• Conditional relationship:
– Depends on recipients (good
governance; strong policies)
– Depends on donors
• Positive relationship, on
average, with diminishing
returns
Disaggregating aid
Net aid
= gross aid – repayments
= “short-impact” aid +
“long-impact” aid +
humanitarian aid –
repayments
From: Clemens, Radelet, and Bhavnani,
“Counting Chickens When They Hatch:
The Short-Term Effect of Aid on Growth,”
Center for Global Development
The relationship
between aid and growth
Aid and Growth: Core result
2SLS
Short-impact aid
Short-impact aid squared
Log repayments
Log initial GDP per capita
East Asia
Institutional quality
Inflation
Budget balance
Openness Sachs-Warner
Tropics
Log initial life expectancy
Civil war
Lagged civil war
Observations
R -squared
0.960
(0.328)***
-0.0588
(0.0264)**
-0.384
(0.188)**
-0.0593
(0.493)
2.39
(0.648)***
0.333
(0.114)***
-1.60
(0.558)***
8.28
(5.47)
1.41
(0.456)***
-2.13
(0.398)***
3.49
(1.85)*
-2.19
(0.891)**
1.86
(0.730)**
368
0.388
Basic Aid Data (2004):
Official Flows
• Global official development
assistance (ODA) from major
donors: $79 billion
• US: $19 billion – the largest
• 24% of the total
• US constitutes 40% of total donor
income
• 0.16% of US income – 21st (of 22)
• Assistance to other countries (e.g.,
Israel, Russia) – not considered
development assistance - $1.5
billion.
Largest recipients of US
foreign assistance in 2004
(millions)
•
•
•
•
•
•
•
•
•
•
Iraq $2,944
Afghanistan $875
Egypt $602
Colombia $500
Russia $671
Israel $499
Ethiopia $410
Jordan $372
Sudan $351
Peru $212
Some New Directions
• Less emphasis on traditional
conditionality; more on
selectivity and achieving results
• More emphasis on country
ownership and local
participation
• Much discussion (but less
action) on harmonization &
coordination
Two broad trends
• Budget, program, or sector-wide
support (SWAps, baskets)
• Issue specific initiatives:
– Global Fund
– HIV/AIDS programs
– Education for All
Millennium Challenge
Account:
Basic concepts
• Select a small number of recipient
countries based on their commitment
to:
– “Ruling justly”
– “Investing in people”
– “Establishing economic freedom”
• Provide them with large sums of
money,
• Give them more say in designing
aid-funded programs, and
• Hold them accountable for achieving
results.
The 16 MCA Indicators
Ruling Justly
Control of Corruption
World Bank Institute
Rule of Law
Voice and Accountability
World Bank Institute
World Bank Institute
Government Effectiveness
World Bank Institute
Civil Liberties
Freedom House
Political Rights
Freedom House
Investing in People
Immunization Rate: DPT and Measles
World Health Organization
Girls’ Primary School Completion Rate
World Bank
Public Primary Education S pending/GDP
National Sources
Public Expenditure on Health/GDP
National Sources
Economic Freedom
Country Credit Rating
Inflation
Regulatory Quality
Institutional Investor
IMF i
World Bank Institute
3 - Year Budget Deficit
National Sources
Trade Policy
Days to Start a Business
Heritage Foundation
World Bank
Qualification
Requirements
• Score above the median on:
– 3 of 6 “ruling justly”
indicators. Countries must be
above the median on
corruption to qualify.
– 2 of 4 “investing in people”
indicators
– 3 of 6 “establishing economic
freedom” indicators.
(Inflation: 15% rather than
the median)
17 countries selected in
2004
Selected: Armenia, Benin, Bolivia,
Cape Verde, Georgia, Ghana,
Honduras, Lesotho, Madagascar,
Mali, Mongolia, Morocco
Mozambique, Nicaragua, Senegal,
Sri Lanka, and Vanuatu
Exceptions:
Added: Bolivia, Georgia,
Mozambique
Dropped: Bhutan, Guyana,
Mauritania, Philippines, Swaziland,
and Vietnam