Development aid

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Development aid (also development assistance, international aid, overseas aid or foreign aid) is aid given by developed countries to support economic development in developing countries. It is distinguished from humanitarian aid as being aimed at alleviating poverty in the long term, rather than alleviating suffering in the short term (Foreign aid, on the other hand, includes both development aid and humanitarian aid. Some governments include military assistance in the notion "foreign aid", while a lot of NGOs tend to disapprove). Development aid is composed of three separate areas: governmental (ODA), foreign investment (FDI), and private (NGO's and others). A fourth area, remittances (sums sent home by foreign workers) has an uncertain role, and since some studies have concluded it has a negative effect on economic growth many commentators do not consider it aid.

Contents

ODA

The term "development aid" is often used to refer specifically to Official Development Assistance (ODA), which is aid given by governments on certain concessional terms, usually as simple donations. It is given by governments through individual countries' international aid agencies and through multilateral institutions such as the World Bank, and by individuals through development NGOs such as Care International or Oxfam. Historically the term used for the donation of expertise has been technical assistance.

Background

The offer to give development aid has to be understood in the context of the cold war. The speech in which Harry Truman announced the foundation of NATO is also a founding document of development policy. "In addition, we will provide military advice and equipment to free nations which will cooperate with us in the maintenance of peace and security. Fourth, we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history, humanity possesses the knowledge and skill to relieve the suffering of these people.“

Development aid wanted to offer technical solutions to social problems without altering basic social structures. Wherever even moderate changes in these social structures were undertaken, e.g. the land reforms in Guatemala in the early 1950ies, the United States usually fiercely opposed these changes.

2004 ODA Figures

The combined Official Development Assistance of OECD countries in 2004 was $78.6 billion. The United States is the world's largest contributor of ODA in absolute terms, $19 billion, but this figure should be compared to the combined European Union contribution that totaled $42.9 billion. Expressed as a percentage of GNI, Norway's contributions remained in the lead at 0.87%, with the combined EU at 0.36%. The United States remains the lowest contributor as a percentage of the OECD, at 0.16%. [1]

Aid Effectiveness

The popular assumption is that development aid works. However, dissident economists such as Peter Bauer and Milton Friedman argued in the 1960s that aid would not work. Econometric studies in recent years have tended to support the pessimist view that development aid has no effect on the speed with which countries develop. Although aid 'ought' to work, negative side effects can include a loss of international competition (known as Dutch Disease), increasing corruption, and adverse political effects such as postponements of necessary economic and democratic reforms, which outweigh the positive effects of aid.

An increasing criticism in recent years is that rich countries have put so many conditions on aid that it has reduced aid effectiveness. For example, donor countries often require the recipient to purchase good and services from the donor, even if it can be cheaper elsewhere. Other conditions include opening up the country to foreign investment, even if it might not be ready to do so.[2]

The Massachusetts Institute of Technology's Abhijit Banerjee and Ruimin He have undertaken a rigourous study of the relatively few independent evaluations of aid program successes and failures. They suggest the following interventions are usually highly effective forms of aid in nomal circumstances:

  • subsidies given directly to families to be spent of children's education and health
  • education vouchers for school uniforms & textbooks
  • teaching selected illiterate adults to read and write
  • deworming drugs and vitamin/nutritional supplements
  • vaccination and HIV/AIDS prevention programs
  • indoor sprays against malaria, anti-mosquito bed netting
  • suitable fertilizers
  • clean water supplies

Foreign Direct Investment

Foreign direct investment, or FDI, makes up the majority of available capital in developing countries. While most of the 2004 global $644 billion of FDI remained within first-world nations, UN figures estimate that 42%, or $255 billion, went to countries with developing status, an improvement over the 27% mark maintained between 2001-2003. [3] However, the main critique of FDI remains that it is by nature capitalistic and generally the first to dry up in times of crisis.

Private Aid

A vast web of non-governmental organizations, religious ministries, foundations, business donations and college scholarships form an important area of aid. Estimates vary, but private aid is at least as large as ODA within the United States, at $16 billion in 2003. World figures for private aid are not well tracked, so cross-country comparisons are not easily possible, though it does seem that per person, some other countries may give more, or have similar incentives that the US has for its citizens to encourage giving. [4]

Remittances

Remittances, or money sent home by foreign workers, remain the most poorly tracked area of development aid. World Bank estimates for remittance flows to developing countries in 2004 totaled $122 billion; however, this number is expected to change upwards in the next few years as the formulas used to calculate remittance flows are modified. The exact nature and effects of remittance money remain contested, however in at least 36 of the 153 countries tracked remittance sums were second only to FDI and outnumbered both public and private aid donations. [5]

The IMF has also reported that private remittances may have a negative impact on economic growth as it is often used for private consumption of individuals and families, not necessarily for economic development of the region or country. [6]

External links

See also

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