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South Korea’s Motivations for Official Development Assistance: 1963-2010 February 14, 2014 Ji Hyun Kim Graduate School of International Studies Ewha Womans.

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Presentation on theme: "South Korea’s Motivations for Official Development Assistance: 1963-2010 February 14, 2014 Ji Hyun Kim Graduate School of International Studies Ewha Womans."— Presentation transcript:

1 South Korea’s Motivations for Official Development Assistance: February 14, 2014 Ji Hyun Kim Graduate School of International Studies Ewha Womans University

2 Overview Introduction Research Question Determinants of ODA allocation Research Methodology Main Findings Significance and Contribution of the Study

3 Introduction Why do governments allocate their limited resources to promote development in other countries? Previous studies – mostly focused on traditional donors’ allocation pattern (US-security, Japan-trade, UK-colonial ties etc) –USA: McKinlay and Little (1977)*, Mcgillivray (2003)**, Alesina and Dollar (2000), Berthelemy and Tichit (2004), and many more –UK: Alesina and Dollar (2000), Alesina and Weder*** (2002) –Japan: Berthelemy and Tichit (2004) Need to have a new perspective to understand the motivations of foreign aid of emerging donors such as South Korea –Starting foreign aid activities when it was a recipient country –Easier to be influenced by political economical situation Middle Power Perspective –Studies on non-traditional powers in the international communities –A few quantitative studies on foreign aid allocation * McKinlay, Robert and Richard Little, “A Foreign Policy Model of US Bilateral Aid Allocation,” World Politics 30 (1): ** McGillivray, Mark, “Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocation,” United Nations WIDER Discussion Paper No. 2003/71. ***Alesina, Alberto and Beatrice Weder, “Do Corrupt Governments Receive Less Foreign Aid?” American Economic Review, 92(4): 1126– 1137.

4 Research Question What is the motivation of South Korea’s ODA? –Have the motivations changed over time? –Are the determinants of loan and grant allocation different? –Is South Korea’s ODA allocated with different determinants by income level of the recipients? To answer the question, tested a model of South Korea’s ODA policy since 1963 and analyzes determinants of several aspects of foreign aid policy. –Focusing on the changes of motivations in accordance with evolving political and economic environment in the international and domestic arena. –Following models of Alesina and Dollar (2000)* and Berthelémy and Tichit (2002)** Studies on South Korea’s ODA allocation –A few quantitative studies: Kim and Oh (2012)*** and Koo and Kim (2011)**** –Both studies did not include “governance in the recipient countries” and “recipient needs” variables as previous studies Simple model  Misleading conclusion –No studies on South Korea’s ODA activities before 1987 *Alesina, Alberto and David Dollar “Who Gives Foreign Aid to Whom and Why?” Journal of Economic Growth 5(1): **Berthelémy, Jean-Claude and Ariane Tichit, 2002, Bilateral Donors’ Aid Allocation Decisions: A Three-dimensional Panel Analysis, UNU/WIDER 2002 Discussion Paper No.2002/123. *** Kim, Eun Mee and Jinhwan Oh, “Determinants of Foreign Aid: The Case of South Korea,” Journal of East Asian Studies, 12(2): **** Koo, Jeong-Woo and Dae-Wook Kim, 2011, “Globalization and ODA: The Determinants of Korean ODA ”, Journal of Korean Sociology, 4(1): (in Korean)

5 Determinants of ODA Allocation Political Interests Economic Interests Governance (Recipients) Humanitarian Needs Internationalism Realistic viewpoint Cold War rivalry  Foreign aid as a tool for influence, votes in UN Former colonial ties/geographical concerns Traditional donors (USA, UK, France etc.) Neo-Realist and Liberal viewpoint Sometimes, mercantilist Trade and financial interests Open market and free trade Japan Idealist viewpoint Main concerns: economic development and poverty reduction Quality of life, income, population etc. Nordic countries Multilateral solution Peer pressure and international community Post-Washington consensus Democracy, economic policy, anti-corruption, openness, growth rate Domestic Politics (Donors) Conservative  self-interest Progressive  humanitarian Realist internationalistHumane internationalist Radical internationalistReform internationalistLiberal internationalist  Where does South Korea stand for? Framework Quantitative variables Stokke (1989)*: Middle powers’ aid allocation is based on humane internationalism. Middle power aid allocation * Stokke, Olav, Western Middle Powers and Global Poverty: The Determinants of the Aid Policies of Canada, Denmark, the Netherlands, Norway and Sweden, Uppsala, Sweden: The Scandinavian Institute of African Studies.

6 Research Methodology Archival Research ( ) –Data collection started from 1987  to cover longer period of time, a qualitative research needed for the period of –Examined all the declassified diplomatic documents and internal reports related to Wonjo –Through the archival study, we could collect the data as much as possible and observe the motivations and goals of ODA activities in the early period. Quantitative Analysis ( ) –Baseline Model ODA i = a 0 + a 1 Trade+ a 2 Political Rights + a 3 Corruption+ a 4 Life Expectancy + a 5 Infant Mortality Rate + a 6 Growth Rate + a 7 Population + a 8 (Population) 2 + a 9 Income + a 10 (Income) 2 + a 11 OECD DAC + a 12 USA + a 13 JAPAN + a 14 Distance + μ i –Statistical Methods : Tobit Random Effect (left-censoring at 0) –Years: ; 1990s/2000s; by governments from Roh Tae Woo to Lee Myung Bak –Income Groups: LDCs, Lower-middle income countries, Upper-middle income countries

7 Changing Motivations ( ) Starting Technical Assistance in the 1960s –Co-planning of South Korea and the U.S. in 1963 as a part of Third Party Training Program of USAID –Concentrating on countries in Africa (Agricultural training program, medical assistance) –Diplomacy toward neutral countries + Securing “friends” Political Interests and Vitalization in the 1970s –Foreign aid competition between North and South Korea –Grants from North and South Korea –Unlike other small size donors, cold war competition and strategic interests drove aid allocation decision Diversified Expansion of ODA in the 1980s –Political interests + economic interests (new markets in the developing countries) –Technology and skill oriented training programs  Policy-oriented training programs –Based on economic growth and well-off national treasury  numerous players appeared –Started concessional loan projects in South Korea90 (11)110 (14)135 (19)182 (24) North Korea317 (22)435 (22)510 (25)350 (15) Source: Document No (1980) Unit: USD 10,000; (Numbers of the recipients)

8 Changing Motivations ( ) Increase of ODA and Turning Point in the 1990s –Korea International Cooperation Agency (KOICA) established in 1991 –Loan-leading increase of ODA in the early 1990s –Asia focused (compared to strategic interests on Africa) allocation started in the mid 1990s –Joining OECD in 1997  Changing recognition of the international status Pursuit of Middle Power and Institutional Improvement in the 2000s –Roh Moo Hyun government’s aggressive ODA policies  Policy Framework for ODA (2005), application for membership at the OECD DAC –Foreign policy discourse started to mention “middle power (Junggyunguk)” diplomacy both in the government and among policy experts –Lee Myung Bak government’s “Global Korea” included global development as one of four key agenda + legal framework –Framework Act on International Development Cooperation in 2009, Joining OECD DAC in 2010

9 Variables DefinitionSource ODAReal ODA Commitment (Constant 2000 US$ million) OECD DAC Statistics Loan, GrantReal Loan, Grant Commitment (Constant 2000 US$ million) OECD DAC Statistics ExportBilateral exports of South Korea (1 year lagged) Office of Statistics, South Korea Political RightsMeans of civil liberties and political right indexes, ranging from 1 (most free) to 7 (less free) CorruptionThe International Country Risk Guide (ICRG) rating, ranging from 1.00 to 6 Life ExpectancyLife Expectancy at birthWorld Bank’s World Development Indicators Infant Mortality RateInfant Mortality Rate under age 5 (per 1,000) World Bank’s World Development Indicators PopulationTotal populationWorld Bank’s World Development Indicators IncomeReal GDP per capita (Constant 2000 US$) World Bank’s World Development Indicators OECD DACReal ODA Commitment (Constant 2000 US$) OECD DAC Statistics USAReal ODA Commitment (Constant 2000 US$) OECD DAC Statistics JAPANReal ODA Commitment (Constant 2000 US$) OECD DAC Statistics DISTravel distance calculation between Seoul and capital city of the recipient country

10 Table 5.3 ODA, Loan, and Grant in 1990s and 2000s ODALoanGrant (1)(2)(1)(2)(1)(2) Trade 5.468** (2.24) (0.42) ** (2.14) *** (2.64) 5.095** (2.12) (-0.05) Political Rights (-1.40) (-2.44) (0.59) (-1.52) (-1.41) *** (2.24) Corruption 2.779*** (5.86) 1.722*** (5.39) (-0.64) (-0.23) 2.751*** (5.94) 1.743*** (5.68) Life Expectancy (-0.98) ) (-1.26) (1.20) (-1.01) (0.88) Infant Mortality Rate (-0.01) (-0.09) (-1.00) (0.47) (-0.02) (0.07) Growth (-0.35) 0.131*** (3.43) (-0.49) 0.987** (2.10) (-0.33) 0.112*** (3.08) Population (-1.31) (0.62) (0.05) (1.31) (-1.28) (0.65) Population (1.33) (-0.21) (-0.22) (-1.43) (1.30) (-0.24) Income (1.41) 6.754*** (2.68) (1.46) *** (2.90) (1.34) 5.155** (2.13) Income *** (-2.03) *** (-3.00) (-1.59) *** (-3.19) * (-1.95) ** (-2.40) OECD DAC (-0.74) (0.33) (-0.91) (1.56) (-0.69) 0.106* (0.59) USA (0.42) 0.124** (2.08) (1.28) (0.76) (0.37) 0.128** (2.24) JAPAN 0.785*** (3.45) (1.57) (1.20) 1.143* (0.85) 0.766*** (3.46) (1.52) Distance (0.07) 2.689** (2.06) ** (-2.07) (-0.99) (0.25) 2.641** (2.08) No. of Obs Censored Rho Notes: (1) (2) Tobit-Normal distribution and censoring at zero. Values within the parentheses under the estimated coefficients denote z-values; * significant at 10% level; ** significant at 5% level; *** significant at 1% level; Rho is standard deviation of the random effect divided by standard deviation of residual. For reason of space constant is not reported.

11 Table 5.4 ODA Allocation by Governments (1)(2)(3)(4)(5) Trade 6.913** (2.29) (0.49) (0.66) 7.486*** (3.06) (-0.24) Political Rights *** (-2.64) 0.881*** (2.90) 1.439*** (4.55) (0.60) (0.56) Corruption 1.699*** (2.85) 3.103*** (5.72) 2.654*** (6.17) (1.00) (0.49) Life Expectancy (-1.46) (0.65) 0.351*** (2.56) 0.201* (1.76) (0.69) Infant Mortality Rate (-0.66) 0.037* (1.65) (1.19) 0.046** (2.00) (0.04) Growth (-0.50) (-1.06) (1.56) (1.00) 0.240*** (2.74) Population (0.26) *** (-3.00) * (-1.51) (-0.31) *** (3.54) Population (-0.12) 0.299*** (2.86) 0.206* (1.64) (0.45) *** (-3.25) Income (1.27) ** (2.41) (1.49) *** (3.79) *** (3.48) Income (-1.39) *** (-3.00) ** (-2.26) *** (-4.39) *** (-3.60) OECD DAC (0.52) (-1.08) ** (-2.04) (-0.73) 0.050* (0.11) USA (1.10) (-0.08) (1.51) (-0.74) (-0.81) JAPAN (0.79) 1.219*** (4.49) 0.619*** (0.619) 0.263* (1.81) 0.522** (2.30) Distance ** (-2.02) (1.51) 3.465*** (2.73) (1.32) * (-0.45) No. of Obs Censored Rho (1) Roh Tae Woo: (2) Kim Young Sam: (3) Kim Dae Jung: (4) Roh Moo Hyun: (5) Lee Myung Bak: Notes: Tobit-Normal distribution and censoring at zero. Values within the parentheses under the estimated coefficients denote z-values; * significant at 10% level; ** significant at 5% level; *** significant at 1% level; Rho is standard deviation of the random effect divided by standard deviation of residual. For reason of space constant is not reported.

12 Table 5.4 Grant Allocation by Governments (1) Roh Tae Woo: (2) Kim Young Sam: (3) Kim Dae Jung: (4) Roh Moo Hyun: (5) Lee Myung Bak: Notes: Tobit-Normal distribution and censoring at zero. Values within the parentheses under the estimated coefficients denote z-values; * significant at 10% level; ** significant at 5% level; *** significant at 1% level; Rho is standard deviation of the random effect divided by standard deviation of residual. For reason of space constant is not reported. (1)(2)(3)(4)(5) Trade 6.201** (2.15) (0.48) (0.52) 6.201*** (2.65) (0.02) Political Rights *** (-2.69) 0.878*** (2.95) 1.352*** (4.48) (0.54) (1.04) Corruption 1.738*** (3.06) 3.101*** (5.67) 2.595*** (6.25) (1.24) (0.88) Life Expectancy (-1.35) (0.54) 0.338*** (2.58) (1.59) (0.45) Infant Mortality Rate (-0.55) (1.62) (1.30) 0.042* (1.81) (0.12) Growth (-0.55) (-1.04) (1.36) (0.67) 0.230*** (2.75) Population (0.26) *** (-2.94) (-1.55) (-0.32) * (3.45) Population (-0.10) 0.285*** (2.78) 0.203* (1.69) (0.49) 0.349* (-3.15) Income (1.31) ** (2.41) (1.55) *** (3.55) *** (3.53) Income (-1.43) *** (-2.99) ** (-2.31) *** (-4.10) *** (-3.63) OECD DAC (0.59) (-1.80) ** (-2.12) (-0.79) 0.074* (0.17) USA (1.00) (-0.10) (1.38) (-0.17) (-0.97) JAPAN (0.76) 1.201*** (4.52) 0.594*** (3.30) 0.223* (1.61) 0.519** (2.40) Distance ** (-2.01) 1.873* (1.80) 3.580*** (2.96) (1.25) (-0.21) No. of Obs Censored Rho

13 Table 5.7 Aid Allocation by Income Group ODALoanGrant Group 1Group 2Group 3Group 1Group 2Group 3Group 1Group 2Group 3 Trade 5.349*** (2.97) 4.529* (1.73) (1.05) ** (2.56) ** (2.49) (0.02) 4.972*** (2.88) (1.42) (1.10) Political Rights *** (-2.87) (-0.15) 1.500*** (2.61) *** (-2.64) (0.02) (1.15) *** (-2.76) (-0.02) 1.423*** (2.57) Corruption 1.970*** (6.12) 3.076*** (7.89) (1.28) (1.24) 6.760* (1.71) (-0.81) 1.941*** (6.26) 2.956*** (7.81) 1.310* (1.62) Life Expectancy * (-1.72) 0.452*** (2.85) (0.27) (0.12) (0.94) (0.68) * (-1.81) 0.409*** (2.66) (0.40) Infant Mortality Rate 0.033* (2.56) *** (-2.63) (-0.34) (-0.58) (1.16) (-0.51) 0.033*** (2.65) ** (-2.36) (-0.05) Growth (0.48) (-0.05) (1.27) (1.02) (1.44) (0.63) (0.42) (-0.63) (1.30) Population (0.54) (0.86) (0.52) *** (2.69) (0.35) (0.09) (0.35) (0.74) (0.44) Population (-0.49) (-0.66) (-0.30) *** (-2.90) (-0.47) (-0.15) (-0.31) (-0.54) (-0.21) Income (0.58) (0.34) *** (3.17) (1.04) (0.94) * (1.42) (0.59) (0.16) *** (3.15) Income (-0.79) (-0.35) *** (-3.26) (-1.05) (-1.00) * (-1.41) (-0.83) (-0.16) *** (-3.23) OECD DAC 0.656* (1.48) (0.63) ** (-2.58) 8.116** (2.32) (-0.60) * (1.71) 0.696* (1.64) (0.93) (-2.67) USA 0.263** (2.52) 0.112** (1.98) (1.13) (-1.27) 2.667* (1.66) (1.09) 0.257** (2.54) 0.111** (2.03) (1.21) JAPAN (-0.45) (1.45) 0.568* (1.78) (-0.79) (1.31) (-0.06) (-0.40) (1.33) 0.581* (1.85) Distance (-1.54) (0.70) (1.59) *** (-3.09) (-0.45) (0.34) (-1.26) (0.78) (1.63) No. of Obs Censored Rho Notes: GNI per capita : Group Tobit-Normal distribution and censoring at zero. Values within the parentheses under the estimated coefficients denote z-values; * significant at 10% level; ** significant at 5% level; *** significant at 1% level; Rho is standard deviation of the random effect divided by standard deviation of residual. For reason of space constant is not reported.

14 Summary of Findings South Korea’s ODA allocation started from the political/Cold War diplomacy motivation and has changed over time. Findings indicate South Korea started to act like a ‘middle power’ (reform + liberal) recently. Governance has been important –Contrary to traditional donors in Alesina and Dollar (2000) and Berthelemy and Tichit (2004)’ conclusion - “donors do not give more aid to less corrupted countries” Economic interest has been important. However, the recently changed –Similar to Japan in Berthelemy and Tichit (2004) in 1990s. Trade becomes insignificant Growth of the recipients becomes important. –Growth rate of the recipients are not supported by traditional donors. After 2000, growth is positively significant for both grant and loan in South Korea. Other donor’s influence become important especially in grant allocation –Similar to Japan on the influence of USA in Alesina and Dollar (2000). The influence of OECD DAC is added after 2000 in South Korea. Humanitarian needs have not been considered. Different results by governments but not related to political orientation Roh Moo Hyun government (economic interest) Lee Myung Bak government (other donor influence, growth) Loan and grant have different patterns of allocation. Governance becomes more important in grant allocation Loan  larger population + wealthier (potential markets or powers) / Grant  smaller population + wealthier (effectiveness seeking) Both loan and grant seek economic interests from LDCs.

15 Contribution of the Study Academic Contribution –Comprehensive analysis on South Korea’s ODA allocation with archival research and quantitative test all together. –Quantitative studies Includes most aspects on determinant variables of ODA allocation from the literature in South Korean case Comparison between 1990s and 2000s, loans and grants, different income groups –Given its highly fragmented policy and implementation environment in South Korea, it is important to watch whether they are different as they are said and whether their policy directions are distinguished or not. Contribution for Policy –ODA allocation pattern still needs to be improved. Concentrating volume of ODA to LMIC rather than LCDs is contrary to the international recommendation despite its increase of grant after ODA allocation pattern to LDCs should be improved (especially loan).


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