Aid and Development

Foreign aid looms large in the public discourse; and international development assistance remains squarely on most policy agendas concerned with growth, poverty and inequality in Africa and elsewhere in the developing world. The present review takes a retrospective look at how foreign aid has evolved since World War II in response to a dramatically changing global political and economic context. I review the aid process and associated trends in the volume and distribution of aid and categorize some of the key goals, principles and institutions of the aid system. The evidence on whether aid has been effective in furthering economic growth and development is discussed in some detail. I add perspective and identify some critical unresolved issues. I finally turn to the current development debate and discuss some key concerns, I believe should be kept in mind in formulating any agenda for aid in the future.foreign aid; aid impact

Aid and development : issues and reflections

The paper has three main sections. The first is a review of two particular propositions which appear in Dambisa Moyo’s 2009 book Dead Aid which were not subjected to rigorous analysis in the reviews which appeared following its publication. The finding is that neither proposition survives serious scrutiny – that aid is responsible for most of sub-Saharan Africa’s economic woes and that the international bond market represents a viable alternative to foreign aid for the finance of development-oriented investment. The second questions some of the characteristics and uses of the World Bank’s Country Policy and Institutional Assessment (CPIA), particularly focussing on the use of an essentially ordinal measure in cardinal applications. The third subjects the UK Department for International Development’s Needs-Effectiveness Index to critical review, concluding that further consideration of its attributes is necessary

An economic analysis of aid fungibility : Japan's official development assistance to Indonesia : a research thesis submitted in partial fulfilment of the requirements for the degree of Masters of Applied Economics at Massey University

This study examines aid fungibility of Japan's official development assistance (ODA) to Indonesia for the period 1973 to 1994. Aid fungibility, often known as switching of aid money into non-development purposes, is one of the most controversial issues that impinges upon the macroeconomic effectiveness of foreign aid. In this study Japan's foreign aid to Indonesia is analysed, since Indonesia is one of the largest recipients of Japan's aid, and also since Japan is the largest aid donor to Indonesia. Using the maximum likelihood cointegration econometric procedure and the error correction mechanism (ECM), the study analyses aid fungibility for non-development current expenditure, development expenditure and domestic revenue for Indonesia. The results indicate that none of Japan's total sectoral aid, other donors' total sectoral aid, and non-sectoral aid from all donors, leaks into non-development current expenditure or reduces domestic revenue. Hence, no evidence of aid fungibility at the aggregate level is found. The study further analyses aid fungibility at the sectoral level for four major sections, i.e. social services sector, economic services sector, production sector, and other sectors. The empirical results provide no evidence that Japan's aid to the social services and production sectors is fungible. However, Japan's aid to the economic services sectors and other sectors is fungible. Furthermore, other donors' sectoral aid to all four sectors is fungible. Also, there is diversion of resources into the other sectors from other three combined sectors, i.e. social services sector, economic services sector, and production sector. This suggests that Japan's aid to the economic services sector and other donors' sectoral aid to the social services sector, economic services sector, production sector, may diverge into the other sectors. This study concludes by speculating the importance of aid sources and sectors to which aid is allocated as some of the factors that explain aid fungibility in Indonesia

Aid and Development

Foreign aid looms large in the public discourse; and international development assistance remains squarely on most policy agendas concerned with growth, poverty and inequality in Africa and elsewhere in the developing world. The present review takes a retrospective look at how foreign aid has evolved since World War II in response to a dramatically changing global political and economic context. I review the aid process and associated trends in the volume and distribution of aid and categorize some of the key goals, principles and institutions of the aid system. The evidence on whether aid has been effective in furthering economic growth and development is discussed in some detail. I add perspective and identify some critical unresolved issues. I finally turn to the current development debate and discuss some key concerns, which I believe should be kept in mind in formulating any agenda for aid in the future.foreign aid; aid impact

Aid Project Proliferation and Absorptive Capacity

Much public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the effectiveness of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs, the donor’s aid and a recipient-side resource, and two outputs, namely, development and “throughput,” which proxies for the private benefits for both donor and recipient of implementing projects, from kickbacks to career rewards for disbursing. The donor’s allocation of aid across projects is taken as exogenous while the recipient’s allocation of its resource is modeled and subject to a budget constraint. Unless the recipient cares purely about development, increasing aid can reduce development in some circumstances. Sunk costs, representing the administrative burden for the recipient of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipient’s resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. With Cobb-Douglas production, a threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projects—but the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects.Foreign aid, donor coordination, project proliferation, absorptive capacity

Local Financial Development and the Aid-Growth Relationship

With official development assistance (ODA) set to rise as countries strive to meet the Millennium Development Goals (MDGs), aid effectiveness remains an important area of development policy. An increasing number of studies support the notion that ODA can contribute to growth in a nonlinear relationship. In this paper, we investigate a new hypothesis regarding this relationship: that deeper financial markets in aid-recipient countries facilitate the management of aid flows, thereby enhancing aid effectiveness. An empirical analysis, using a panel data set, finds robust support for the hypothesis.Foreign aid,economic growth,poverty,financial development

Aid Volatility, Policy and Development

We build on Bulir and Hamann's analysis of aid volatility (2003, 2005), showing that the conclusions reached depend on the dataset used. Their argument that the poorest countries have the highest volatility appears not to be correct. The impact of volatility on growth is negative overall, but differs between positive and negative volatility. The mix between `responsive´ components of aid, e.g. programme aid, and `proactive´ components, e.g. technical assistance, is important. Finally, we conclude that measures which increase trust between donor and recipient, and reductions in the degree of donor `oligopoly´, reduce aid volatility without obviously reducing its effectiveness

Intellectual property related development aid: is supply aligned with demand?

We assessed to what extent developed country development aid programmes are likely to have interacted with, and potentially contributed to the promotion of country-appropriate sustainable changes in IP strategies and technological capacities over the period 2005-10. This was done primarily on the basis of an imputed impact assessments of four emerging and transition economies; namely Brazil, India, Poland and Thailand. Through an analysis of various measures of the domestic economic, technological and Intellectual Property context, we studied to what extent the supply of IP-related development aid provided between 2005 and 2010 responded to the likely needs of recipient countries. While the data shows that technical and financial assistance in this area could be of great use, and there is clearly a need for well-targeted IP TA and much scope for useful IP TA interventions, there seemed to only be a partial alignment between country needs and the direction of IP TA. On the whole, most IP-related development aid and technical assistance ended to focus on similar areas in each country, regardless of the development context. In Brazil and India’s case, training on IP administration may have influenced increased efficiency (from a low base) at the INPI and IP India, while the substantial EU support to raise SME IP awareness in Poland is likely to have had some significant impacts. In India, sustained development aid in this area likely influenced legislation on plant variety protection, as did WIPO TA on legislative reforms in Thailand. In all cases, the substantial US (and to a more limited extent EC) focus on development aid directed towards enforcement coincided with improvements in this area, though the political and economic pressures by both providers, and especially the US Section 301 System probably dwarfed the impact of this type of aid. Further, the typology and direction of IP related development aid reflects the comparative advantage of IP TA providers, as well as political and diplomatic interests, trade priorities and colonial ties, among many other things. As such, it is important to understand that IP TA is also highly political – a fact often concealed in the emphasis on its “technical” nature.Intellectual Property and development, aid and technical assistance technological capacities in Brazil, India, Poland, Thailand, taxonomy of development, funding flows Intellectual Property and development, aid and technical assistance technological capacities in Brazil, India, Poland, Thailand, taxonomy of development, funding flows Intellectual Property and development, aid and technical assistance, technological capacities in Brazil, India, Poland, Thailand, taxonomy of development, funding flows Intellectual Property and development, aid and technical assistance technological capacities in Brazil, India, Poland, Thailand, taxonomy of development, funding flows

Comparative Appraisal of Multilateral and Bilateral Approaches to Financing Private Sector Development in Developing Countries

private sector development, development cooperation, bilateral aid, multilateral aid