Conflict, Aid and Poverty: Cause, Effect and Prediction

Recent studies and reports suggest that foreign aid/intervention has been somewhat futile in eradicating conflict. In this study, we develop a simultaneous donor/recipient model of foreign aid and terrorism. Thereafter, we extend our theoretical propositions through a machine learning algorithm of inductive causation. We find that terrorism increases foreign aid, however foreign assistance is futile in mitigating terrorism. Additionally, socio-economic factors influence foreign aid given by the donors. But foreign assistance is unsuccessful in enhancing the livelihoods of the underprivileged. We conclude that foreign aid policies need to be more efficient.Food Security and Poverty, International Relations/Trade,

On the Simultaneity Problem in the Aid and Growth Debate

This paper shows that foreign aid has a signicant positive average effect on real per capita GPD growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates yield that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4 percent. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid yields that a 1 percent increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points.aid allocation, aid effectiveness, economic growth, simultaneity

Why Foreign Aid Fails

The main point of this paper is that foreign aid fails because the structure of its incentives resembles that of central planning. Aid is not only ineffective, it is arguably counterproductive. Contrary to business firms that are paid by those they are supposed to serve (customers), aid agencies are paid by tax payers of developed countries and not by those they serve. This inverse structure of incentives breaks the stream of pressure that exists on the commercial market. It also creates larger loopholes in the principle-agent relationship on each point along the chain of aid delivery. Both factors enhance corruption, moral hazard and negative selection. Instead of promoting development, aid extends the life of bad institutions and those in power. Proposals to reform foreign aid – like aid privatization and aid conditionality – do not change the existing structure of the incentives in aid delivery, and their implementation may just slightly improve aid efficacy. Larger improvement is not possible. For that reason, foreign aid will continue to be a waste of resources, probably serving some objectives different to those that are usually mentioned, like recipient’s development, poverty reduction and pain relief.

Foreign aid and growth

Burnside and Dollar (2000) (BD) ignite a policy debate by claiming that foreign aid works only in good policy environments. This result, however, has been criticized by a number of studies on numerous statistical grounds concluding that the BD result is too fragile. I revisit the aid-growth relationship using Bayesian Model Averaging techniques to account for uncertainty issues regarding model specification. I find that the data evidence does not support the claim that aid works only in good policy environments. My analysis also suggests that aid flows are not very effective in boosting growth regardless of the quality of the policy environment.

Does Foreign Aid Increase Foreign Direct Investment?

The notion that foreign aid and foreign direct investment (FDI) are complementary sources of capital is conventional among governments and internationalcooperation agencies. This paper argues that the notion is incomplete. Within the framework of an open economy Solow model we show that the theoretical relationship between foreign aid and FDI is indeterminate. Aid may raise the marginal productivity of capital by financing complementary inputs, such as public infrastructure projects and human capital investment. However, aid may also crowd out productive private investments if it comes in the shape of physical capital transfers. We therefore turn to an empirical analysis of the relationship between FDI and disaggregated aid flows. Our results strongly support the hypotheses that aid invested in complementary inputs draws in foreign capital while aid invested in physical capital crowds out FDI. The combined effect of these two types of aid is small but on average positive.foreign aid; foreign direct investment (FDI); open economy Solow model

Foreign aid and export performance: a panel data analysis of developing countries

The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.Developing countries - Economic conditions ; Exports

First impressions and perceived roles: Palestinian perceptions on foreign aid

This paper summarizes some results of a wider research on foreign aid that was conducted in the West Bank and Gaza Strip in 2010. It seeks to describe the impressions and feelings of Palestinian aid beneficiaries as well as the roles and functions they attached to foreign aid. To capture and measure local perceptions on Western assistance a series of individual in depth interviews and few focus group interviews were conducted in the Palestinian territories. The interview transcripts were processed by content analysis. As research results show — from the perspective of aid beneficiaries — foreign aid is more related to human dignity than to any economic development. All this implies that frustration with the ongoing Israeli-Palestinian conflict inevitably embraces the donor policies and practices too

Foreign Aid and Economic Development in Postwar Lebanon

This paper shows that foreign aid in postwar Lebanon passed through two phases with distinct features that have had far reaching implications for postwar development. In the first phase lasting from 1992-97, foreign aid was mainly channelled towards providing resources for postwar reconstruction projects. The second phase from 1997 to the present witnessed a qualitative shift in foreign aid utilization from reconstruction needs towards financial stability and balance-of-payments equilibrium needs. This shift allowed the government to intervene in the foreign exchange market, maintained balance of payments surpluses during this period, reduced interest rates on public debt instruments and finally provided the necessary liquidity and 'confidence' for the government to continue borrowing funds from local commercial banks and foreign investors. More importantly this shift in foreign aid allowed the government to avoid financial and currency crises in 2002. However, the cost of such a qualitative shift was large in terms of fiscal management, diversion of funds from reconstruction, and the increased dependency of the Lebanese economy on foreign aid for stabilization purposes.foreign aid, postwar reconstruction, post-conflict, Lebanon

Impact of Foreign Aid on Economic Development in Pakistan [1960-2002]

The Two-Gap Model suggests that the Poor countries have to rely on the foreign resources to fill the two Gaps: Import-Export Gap and the Savings-Investment Gap. There are many forms of the foreign resources like FDI (Foreign Direct Investment), External loans & Credit, technical assistance, Project & non-project aid etc. But UDC’s (including Pakistan) don’t have the investment friendly policies. So, they have to rely on the Foreign aid and Debt rather than FDI and portfolio investments. The role of these external resources always remains questionable. This paper analyzes the trends and structure of the foreign aid in Pakistan during 1960-2002 and its role and effectiveness in the economic development in Pakistan.Foreign capital inflows (FCI); Foreign Aid; Economic Development; Foreign Economic Assistance; Official Development Assistance (ODA); Foreign Debt Burden; Aid and Growth; Trends and Structure of Aid; Aid Effectiveness

The effect of foreign aid on corruption: A quantile regression approach

This paper investigates the effect of foreign aid on corruption using a quantile regression method. Our estimation results illustrate that foreign aid generally lessens corruption and, in particular, its reduction effect is larger in countries with low levels of corruption. In addition, considering foreign aid by donors, our analysis indicates that while multilateral aid has a larger reduction impact on corruption, bilateral aid from the world’s leading donors, such as France, the United Kingdom, and the United States, has no significant effect on corruption. However, bilateral aid from Japan is shown to be statistically significant in lessening corruption.Foreign Aid; Corruption; Quantile Regression