A young boy rests by empty USAID vegetable oil tins in the Dagahaley refugee camp which makes up part of the giant Dadaab refugee settlement on July 19, 2011 in Dadaab, Kenya. (Getty)[/caption]
by Yasmine El-Geressi
Does aid work? The absence of any serious critical dialogue has allowed this large and complex issue to become a "good" versus "bad" debate.
Let’s start by pointing out the obvious: some aid projects completely fail, and not all the evidence points to positive outcomes. But there is a great deal of success as well. For starters, there is widespread agreement that aid programs focused on health have saved millions of lives. The President’s Emergency Plan for AIDS Relief (PEPFAR), which among other things provides antiretroviral treatment for 11.5 million people, has been a key reason why global deaths from the disease have fallen by almost half since 2005. At the same time, malaria mortality has declined by nearly 50 percent since 2000—saving almost 7 million lives—in part through the efforts of U.S. Agency for International Development’s President’s Malaria Initiative. Tuberculosis infections have fallen by 25 percent, the world is on the brink of eradicating polio, and 4 million fewer children die from diarrheal diseases each year than three decades ago. Leadership and hard work in developing countries deserve much of the credit, but there is no doubt that aid was a major force in saving these lives. (The Brookings Institute)
The biggest debates around aid effectiveness have centered around economic growth, dependency and corruption.
AID AND ECONOMIC GROWTH
Over the last five decades, western donors spent $4.14 trillion to official development assistance – the equivalent of more than seven times the 2014 GDP of Nigeria. These flows are topped up by support from non-governmental organisations and other private charities, and so-called new donor countries. Yet, in many of the developing countries receiving the aid, poverty still looms large, and underdevelopment persists. (weforum.org)
Despite a large number of academic articles, researchers have not reached a consensus on whether aid helps or hinders economic growth.
Scottish-born economist and Nobel Prize winner Angus Deaton, is one of the most persuasive opponents of foreign aid. He thinks that foreign aid - for the purposes of development, not to stave off humanitarian health catastrophes or other such emergencies - does more harm than good and hurts, rather than helps, the poor.
Mr. Deaton is the Eisenhower Professor of Economics and International Affairs at Princeton. He has spent decades working with the World Bank in creating basic yardsticks for measuring global poverty and with the Gallup Organization in creating survey-based measures of well-being. According to Deaton, and the economists who agree with him, much of the $135 billion that the world’s most developed countries spent on official aid in 2014 may not have ended up helping the poor.
Sub-Saharan Africa had a 54 percent poor population in 1990. This dropped down to 41 percent in 2013. Due to massive population growth in Africa, the absolute number of poor people actually rose by 113 million and more than a quarter of the countries are poorer now than in 1960.
Even as the level of foreign aid into Africa soared through the 1980s and 1990s, African economies were doing worse than ever, as the chart below, from a paper by economist Bill Easterly of New York University, shows.
The effect wasn't limited to Africa. Some economists have noticed that an influx of foreign aid did not seem to produce economic growth in countries around the world. Rather, lots of foreign aid flowing into a country tended to be correlated with lower economic growth, as this chart from a paper by Raghuram Rajan and Arvind Subramanian, who is now the economic advisor to India’s prime minister Narendra Modi, shows. (weforum.org)
But other studies have concluded there is evidence that aid boosts growth is.
In a paper published in 2011 Markus Brückner, then of the University of Adelaide, where estimates the impact of aid on 47 countries between 1960 and 2000, he argued that donors tend to give less to faster-growing countries which can produce a negative correlation between growth and aid. By looking at periods when severe weather and dramatic shifts in commodity prices had big impacts on growth, Mr Brückner identified variations in foreign aid that were not driven by changes in income per person. He found that a 1% rise in foreign aid lifted growth in income per person by about 0.1 percentage points. (The Economist)
In an influential book that deals with the plight of the poorest of the poor, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, Collier has argued that both critics and staunch supporters of official aid have greatly exaggerated their claims and distorted the empirical and historical records. Collier’s reading of the evidence is that over the last 30 years official assistance has helped accelerate GDP growth among the poorest nations in the world – most of them in Africa – by approximately 1% per year. This is a nontrivial figure, especially when one considers that during this period the poorest countries have had an aggregate rate of per capita growth of zero. That is, in the absence of official assistance, the billion people that live in these nations – the so-called ‘bottom billion’ – would have seen their incomes decline year after year. (Toxic Aid: Economic Collapse and Recovery in Tanzania by Sebastian Edwards)
Nobel laureate Joseph Stiglitz argues that “Foreign aid … for all its faults, still has brought benefits to millions, often in ways that have almost gone unnoticed.” Martin Ravallion and Australian economist and former director of the research department at the World Bank concluded that “the recent macro evidence is more consistent with the claim that sustained aid commitment to poor countries is good for their economic growth over the longer-term.”
For an increasing number of economists, the issue of aid effectiveness is neither black nor white.
In the book Poor Economics: A Radical Rethinking of The Way to Fight Global Poverty, Banerjee and Duflo, join a growing group of researchers in arguing that this controversy cannot be solved in the abstract, by using aggregate data and cross-country regressions. They argue that there is need for a “radical rethinking of the way to fight poverty.” The evidence, in their view, is quite simple – some projects financed by official aid work and are effective in reducing poverty and moving the domestic populations towards self-sufficiency and prosperity, while other projects (and programmes) fail miserably. The question is not how aggregate aid programmes have fared in the past, but how to evaluate whether specific programmes are effective.
AID AND CORRUPTION
Critics of foreign aid argue that a culture of foreign aid dependency has led to a situation where African governments lose the incentive to implement necessary policy reforms that would remedy these problems.
In a syndicated article Angus Deaton wrote: “This is most obvious in countries – mostly in Africa – where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system. If they are accountable to anyone, it is to the donors; but even this fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.”
Furthermore, Deaton argues that the idea that if we simply pumped in more aid, better results would gush out – ignores the fact that funds are often fungible. Even if aid is narrowly targeted at say, food or health, a government can simply economise on expenditures that it might have made anyway and redirect them elsewhere – for example, to the military.
But other researchers have concluded otherwise. Thad Dunning at the University of California, Berkeley, found that aid had a positive effect on democracy in Africa after the Cold War. Sarah Bermeo at Duke University found that after 1992 foreign aid from democratic donors increased the likelihood of a democratic transition.
As a recent example, donor pressure in Senegal—in support of the majority of local voices—had a major impact in thwarting former president Abdoulaye Wade from changing the constitution and seeking a third term in office in 2012. Far from supporting dictatorship, donor pressure helped the citizens of Senegal achieve an open and fair election for a new president. President Ellen Johnson Sirleaf of Liberia sees a strong connection between aid and preventing recurrence of the long civil war in her country. “Without international support,” she has said, “Liberia would not have made nearly as much progress, and might have even plunged back into conflict.” (The Great Surge: The Ascent of the Developing World by Steven Radelet)
A decade ago the approved cure for fragmentation was for donors to pay aid directly to poor countries to use as they please. This has become deeply unfashionable. A donor who funds a government feels responsible for everything that government does. Taxpayers in rich countries dislike their cash being spent on flashy cars. So donors strive to send the right sort of aid to the places where it will do the most good. But even if Western countries sent clear, consistent signals, they might struggle to be heard. The Economist argues that aid has become less important to many poor countries than foreign investment or remittances. And donors have become far more diverse. “Several countries that used to receive aid now hand it out; a few, including India and Turkey, do both. China distributed roughly $3.4 billion last year, according to the OECD. Although that is puny next to America or Britain, China is important because it can act as a shock absorber, moving into a country when others are pulling out. For corrupt dictators, Chinese aid is even better than the Western kind. China tends not to fuss over democracy, and it seldom objects to loans being spent on pointless grand projects: after all, it builds a lot of those at home.”
MOVING FORWARD
Plenty of research has been done, and the published outputs are available to read. Much of the evidence is positive but not all of it is. People should be open about this and focus on how to improve aid effectiveness.
