Topic 7 - Foreign Aid, Remittances and Development

Question 1

What does Foreign Assistance/ Foreign Aid comprise of?

Answer 1

Official Development Assistance (ODA)

Private Voluntary Assistance (PVA)

Question 2

What counts as PVA?

Answer 2

Grants and contributions from NGOs, charities,
religious groups, private companies, etc.

e.g. Bill and Melinda Gates foundation, Save the
Children, Oxfam, etc.
- Growing rapidly in importance

Question 3

What counts as ODA? (Administration and Use?)

Answer 3

By government agencies (1)
For econ development and welfare enhancement (2)
With concessional terms (better than the mkt) (3)

Question 4

Could military aid be considered as foreign aid?

Answer 4

Can be classed as such by giver country but not by the OECD

Question 5

Who are the DAC?

Answer 5

AKA Development Assistance Committee

A forum to discuss issues surrounding aid, development and poverty reduction in developing countries. It describes itself as being the “venue and voice” of the world’s major donor countries

Essentially discussing things like what are the criteria of receiving aid etc.

Question 6

When is ODA actually considered as ODA

Answer 6

If:

1. Goes toward list of low and middle income countries or institutions like World Bank
2. Spent by govt or govt agencies
3. Spent first and foremost to promote econ development and welfare
4. Grant/Loan at better rate than mkt

Question 7

Who are the donors of ODA?

Answer 7

Global North to the Global South

Global South to the Global South

Question 8

What is Bilateral Assistance?

Answer 8

One country to another

Question 9

What is MultiLateral Assistance?

Answer 9

Agency pooling together to give to one country or many

E.G. IMF, Development Banks

Question 10

Who gives the highest level of aid per GNI?

Answer 10

Sweden at 115% GNI

Question 11

Who contributes the most to the ODA as a member of the DAC?

Answer 11

US at 25% of total ODA

Countries are free to decide who to give aid to

Question 12

Who are the top 3 recipients of UK aid?

Answer 12

1. Pakistan 417 Mil
2. Ethiopia 393 Mil
3. Afghan 368 Mil

Question 13

Who are the top 3 recipients of US aid?

Answer 13

1. Afghan 1183 Mil
2. Jordan 1126 mil
3. Ethiopia 847 Mil

Question 14

What are the motives for Aid?

Answer 14

1. Aid for Relief
   - Disasters and humanitarian relief
   - Role of the media, campaigns and appeals -> PROS: Awareness CONS: Fatigue
2. Aid for development
   - Less media engaging
   - Marshall Plan
   - Infrastructure Building
   PRO

Question 15

What are the motives for Aid?

Answer 15

3. Aid for Advocacy
   Aid for right empowerment. Some argue poverty is offshoot of opression. Gender, Minority rights
   Education and Public Awareness. Shapes behaviours (under what standards tho?)
4. Aid for Self Interest
   Economic, political, international standing / reputation, global alliances.
   -Resource extraction; Open South-South co-operation; Climate, Cold war etc.
   and environmental protection;
5. Aid for Private Sector advancement
   - A re-focus of understanding of private sector’s role

Question 16

What are Aid Darling and Aid Orphans?

Answer 16

Aid Darlings - Countries that are attractive to donors for whatever reason

Aid Orphans - Countries not very attractive to donors

Question 17

What are the factors influencing where aid goes? (PT 1)

Answer 17

1. Commercial Ties:
   Often to help support certain firms/sectors in the donor country e.g., farmers (food aid),technical advisors (‘experts’) etc.
2. Democracy
   Countries sharing democracy
3. Foreign Policy Objectives and Political Alliances:
   i.e Soviet Union and N. Korea
   Former colonies (Portugal, UK, France, etc.– large % to former colonies)

Question 18

What are the factors influencing where aid goes? (PT 2)

Answer 18

4. Income Levels and Poverty (Humanitarian aid):
   Most concessional assistance goes to poorest countries (relatively)
   However a ‘ceiling effect’, after which concessional loans kick in.
5. Country Size
   ‘drop in the ocean’ vs. ‘drop in a spoon’ ideology

Question 19

What are the 3 distinct views into Aid?

Answer 19

1. ODA ineffective and harmed more
   - Creates dependency, promote corruption and encourage currency overvaluation (Easterly and Moyo view)
2. ODA could be improved
   - Collier ‘Traps in perpetuating destitution’
   - Banerjee and Duflo ‘Use of RCTs could help in designing more effective aid programmes
3. MOAAAARRRRR AID
   However, with rethink on the mechanism and methods -Sachs and Stiglitz

Question 20

What is Sachs and Moyo’s view on Aid working?

Answer 20

Sachs: Aid to help onto development

Moyo: Aid causes crowding out and this capital only causes corruption
Instead better access to capital mkts needed

Question 21

What are the views of aid on econ growth (NOT WORKING)

Answer 21

-Crowding out effect: Undermining incentives for private sector activity
• Capital inflows effect on Macro variables
• Shifts from Savings to Consumption
• Tied aid for input sourcing
• Aid dependency
- Causes mkt failures

Question 22

What are the views of aid on econ growth (WORKING)

Answer 22

Private sector growth
• National level infrastructure
- Role of capital and productivity -> Harrod-Domar and Solow

Question 23

What is Aid Effectiveness?

Answer 23

Measure of how effective development aid has been in achieving economic
and/or human development (or the development targets)

Question 24

What are the conditions to seeing positive impact of Aid to GDP and development?

Answer 24

Has been good in developing human capital (Edu,Health,Knowledge etc.)
Diminishing returns seen tho

• Characteristics of Recipient country: Policies, Institutions, Policy Environment
• Type of Aid causing time lag: Aimed at long-term growth (Infrastructure)
  Aid funnelled into Human Capital (V. Long term impact)
• Donor Practises
  Motivations for donating, influence on donor etc.

Question 25

In adjusting 'better' governance what are the policies that should be focued?

Answer 25

Realign State Systems - SAP Programmes (Struct Adjustment Programme) Emphasis on: Open Governance, Public Participation, Democracy and Human Rights

Question 26

What are the views of aid on governance (WORKING)

Answer 26

1. Can improve Capacity Building - Education and Training - Can positively influence workings of state and non-state institutions -Policies, Processes and Procedures Can have wide-ranging impacts

Question 27

What are the views of aid on governance (NOT WORKING)

Answer 27

1. Misuse and distortions 2. Fungibility of Aid 3. Fiduciary risk 4. Dependency….(what happens when the Aid stops) 5. State legitimacy conflicts – political considerations 6. Loss of independence and privacy (inverse sovereignty effect) 7. Volatility of Aid 8. Financial management and Forward planning 9. Donor co-ordination 10. Absorptive capacity 11. Regulation standards 12. Hard to quantify (Typically, qualitative)

Question 28

What are the views of aid on poverty (WORKING)

Answer 28

-> Most publicised (impactful) • Live Aid; Make Poverty History; USA for Africa; MDGs; SDGs; etc. ->Provision of what the poor lack (recall the ‘Poverty Trap’ idea and ‘The Big Push’ idea) ->Human well-being/welfare

Question 29

What are the views of aid on poverty (NOT WORKING)

Answer 29

- >Free markets and equal access (not Aid) - >Market distortions that hurt the poor - >Poor are voiceless (often unaware of Aid due them) - >Fiduciary Risk & implications for Inequality • China’s example =Aid is not the answer.

Question 30

What are some other issues behind Aid?

Answer 30

1. Role of non-state agencies: When going thru govt agencies, whole host of benefits and problems - Maybe NGO's better? 2. Public Accountability: Accounting for aid monies to taxpayers/donors

Question 31

In shifting from aid effective to effective development (co-operation) what were the 4 important principles to facilitate this?(Per the 2011 Busan Principle)

Answer 31

1. Ownership of develop priorities by developing nations: Basically the developing nation should choose how it wants to develop 2. Focus on results: Aid should be driven on results 3. Partnerships for development: Aid should be based on partnership and not a principal-agent model where one controls the other 4. Shared Responsibility: Co-op for development should be accountable to all citizens not just aid agencies and their donors

Question 32

What are Remittances?

Answer 32

Transfer payments Think immigrants giving money back home

Question 33

What affects the level of remittances given back home?

Answer 33

1. Population -> Larger the pop, the more the remittance e.g. 76bn given in India via remittance 2. Sector -> If migrants find themselves in one sector then downturns in sector impact payments back home

Question 34

Why are remittances growing in importance?

Answer 34

More money provided to developing nations via remmitance than ODA. - Consistent growth through booms and busts

Question 35

What has caused the growth in remittances?

Answer 35

1. Improved (money transfer) technology 2. Regulation of other less formal channels: Money laundering, funding terrorism, illegal activities 3. Emigration patterns – increased migration of skilled labour (BRAIN DRAIN) 4. Migrants seeing home country as a good investment destination.

Question 36

What are some pros and cons to remittances for the recipient nations?

Answer 36

CONS: 1. Brain drain effects 2. Loss of societal investment in individual; 3. Governments shirking their responsibilities 4. Consumption patterns; Inflation; Dependency; PROS: 1. Human capital development 2. Research and Development carried out by migrants for developing country policies; 3. Household spending: 4. Infrastructure development (e.g. houses), 5. Funding education/health care, consumption, 6. Household income diversification 7. Escape from poverty trap. 8. Migrants contribution to development projects.

Question 37

To tax remittances or not? (PROS AND CON)

Answer 37

Oklahoma currently does so at 5% for first $500 and 1% thereafter CONS: - Double taxing migrants - Incentive to use unregulated, informal channels (security risk, reduce tax revenues) - Expatriates may opt for countries with lower taxes - In past such taxes not work in Gabon (2008), these taxes insignificant