1. Chapter 14 Foreign Aid Norton Media Library Chapter 14
Dwight H. Perkins
Steven Radelet
David L. Lindauer

2. Chapter 14: Learning Objectives
1. Some on foreign aid: definition, decomposition, the major donors and major recipients.
2.The controversies surrounding foreign aid including its motivations.
3. Three views on aid’s impact on growth and development.
4.The issue of conditionality & the future of foreign aid.

3. 1.Foreign Aid: Introduction
“I have long opposed foreign aid programs that have lined the pockets of corrupt dictators, while funding the salaries of a growing, bloated bureaucracy” ... US Senator Jesse Helms, 2002.
Diverse views on Aid: James Wolfenson –World Bank: There is need for more aid Senator Jesse Helms; no US aid should be given to any country.
Massive Historic Aid: Marshall Plan during WW led by USA- made a huge difference in European post-ww2 reconstruction

4. Economist Views on Foreign Aid
Strong supporter: Jeffery Sachs and Joseph Stigltz
Others such as Chicago school conservative economists: do not care for more aid
Case massive Foreign Aid Failure in Africa
Congo/Zaire, Haiti, Zambia, etc
Case success: Botswana, Korea, Taiwan, Mozambique, Uganda, Tanzania.
There is mixed record of Aid effectiveness

5. 2.Donors & Recipient
Foreign Aid comprises of financial flows, technical assistance, commodities given by one country to another.
Two criteria: .
promote development and welfare- excluding military aid
Provided as a grant or a subsidized loan

6. Who Gives Aid Mostly Industrial Countries (OECD)
Government Agencies such as: USAID, SIDA. etc
World Bank, IMF, UNDP, Regional Banks
Marshall Plan: The US committed 1.5% of GDP about 10 times as much US aid today.
US official development assistance now is 0.16% of GDP.
Marshall plan was successful because of presence of skilled workforce, financial & legal institutions

7. Search for Aid data…. Who gets Aid and who gives Aid
Arab spring effect?

8. The Commitment to Development Index: Ranking of quality of their Aid policies
Ranking of 21 richest countries by CDI criteria
Foreign aid quantity
Trade policies
Foreign Investment Policies
Environmental Policy
Security including peace keeping operations
Migration-ease of migration
Technology-support of Research & Development

9. The Motivations for Aid: Why do nations give aid?
Foreign policy objectives & political alliances
Poverty reduction
Country size; Smaller states more aid
Look for commercial or trade ties
Enhancing Democracy??
Fighting Global Terrorism? Strategic aid.

10. The Effect of Aid on Growth and Development
Generally, there are 4 Broad of Objectives of Aid
1. Stimulate economic growth through building infrastructure, supporting sectors such as agriculture, technology, new ideas
2. Strengthening education, health, political systems, environment

11. 3. Food aid and other commodities in case of emergencies and disaster
4. Economic Stabilization following natural or man- made shocks…
- Examples??

12. Types of Aid
Emergency and humanitarian negatively associated with growth
Aid that has effect over a long period of time- on health, education, democracy
Aid that directly affects growth inlcudes; roads, electricity, agricultural support, etc

13. Q: Will aid really boosts growth?

14. Aid, Growth, and Development
Stimulate economic growth: building infrastructure, supporting productive sectors: agriculture, new ideas, new tech
Other development objectives: education, health, environmental and political systems
Helping in natural disasters ad humanitarian crises
Help stabilizing economies after economic shocks

15. Three Views of Aid- The AID debate
View 1; On average Aid has a positive impact on economic development, but not always- especially on health, education,
View 2: Has little or not effect may actually undermine growth and development. For example the effect of Food Aid may lower domestic food prices and displace local production,, Create Aid dependency
View 3. The Effect is conditional depending on Good policies, institutions and Good Governance- Example Aid to Botswana and Korea has been effective.

16.
The relationship between the foreign aid received per capita in 131 developing countries during and the rate of economic growth in those countries ( ) as measured by the % increase in gross national income.
There is a noticeable negative correlation, that is, increased flows of foreign aid are associated with somewhat lower economic growth. While this does not prove that foreign aid actually impedes growth, it is powerful evidence that such aid does little or nothing to improve it.

17. By: WILLIAM EASTERLY

18. Toward Aid Effectiveness
Country Selectivity – Give aid to more democratic with good governance &least corruption
Harmonize and coordinate better- several hundred aid missions are in Tanzania and Ethiopia

19. Result based management- allocate to projects that show results, modify existing programs, Learn from experience , better information

20. Fig. 14.5 top: Diminishing returns to Aid- There can be too much aid!20

21. Fig. 14.5 The case of no effect of Aid on Growth?21

22. Fig. 14.5 The 3 views of the effect of aid on growth22

23. Motivations & Objectives of Aid
to support foreign policy and political alliances,
to raise income levels and reduce poverty,,
to strengthen commercial ties,
to reward newly democratic countries.