14. Foreign aid

Question 1

How could aid theoretically aid developing in poor countries?

Answer 1

It could plug the gap in the rate of domestic savings needed for vital investment (Solow-Swan model)

Question 2

What is Jeffrey Sachs’ position on foreign aid?

Answer 2

Poverty can be entirely eliminated by 2025 if rich countries commit to $195 billion in foreign aid per year during 2005-2015 Sachs (2006)

Question 3

What is William Easterly’s position on foreign aid?

Answer 3

In the past 40 years billions have been spent on aid to Africa and yet the typical African country is no richer today than 40 years ago

Question 4

What is the world banks position on foreign aid?

Answer 4

Despite the billions of dollars spent on development assitance each year, there is still very little known about the actual impact of projects on the poor

Question 5

What is humanitarian aid?

Answer 5

Humanitarian aid: Assistance designed to save lives, alleviate suffering and maintain and protect human dignity during and in the aftermath of emergencies

Question 6

What is non-humanitarian aid?

Answer 6

Development aid whcih seeks to address the underlying socioeconomic factors which may have led to a crisis or emergency

Question 7

What is bilateral aid?

Answer 7

Government to government

Question 8

What is multilateral aid?

Answer 8

Government -> multilateral organisation -> government

Question 9

What is NGO aid?

Answer 9

Non-governmental organisations

Question 10

What are the three ways aid can be delivered?

Answer 10

• Project aid (infrastrucutre, public goods etc)
• Debt relief
• Cash transfers or in-kind eg food aid

Question 11

What does ODA stand for?

Answer 11

Official development assistance

Question 12

What is ODA?

Answer 12

Flows of official financing administered with the promotion of economic development and welfare of developing countries as the main objective and which are concessional in character with a grant element of at least 25%

Question 13

What is the UN target for ODA?

Answer 13

In 1970, the UN set a target of all member countries spending 0.7% of GNI on ODA

Question 14

Which countries received the highest levels of ODA per capita in 2020?

Answer 14

• Syria
• Afghanistan
• Jordan
• Georgia

Question 15

Name some countries that are heavily reliant on ODA

Answer 15

In Somalia and the Central African Republic (CAR) this equates to more than 100% of government spending

Question 16

What are the key determinants of aid flows?

Answer 16

• Foreign policy concerns and promotion of trade
• Political and ideological similarities
• Economic interests such as access to raw materials
• Colonial ties
• Economic needs

Question 17

Give an example of how political and ideological similarities have impacted aid flows

Answer 17

A sudden increase in US foreign aid spending in Palestine around the 2006 Palestinian elections

Question 18

What percentage of aid is directed towards the poorest countries and what may this show?

Answer 18

1.69%-5.25% meaning aid is not entirely altruistic

Question 19

What are aid conditionalities?

Answer 19

Aid often comes with expectations of how it should be spent - Although recipients sometimes do not always follow the expectations imposed by donors or donors do not enforce them. To recieve aid a country has to fulfull certain criteria eg, macro stability, minimal institutional quality, no interventions in markets

Question 20

What are some potential drawbacks of conditionality and selectivity?

Answer 20

• Limited autonomy of recipients, limited policy discretion
• Poorest countries may be excluded

Question 21

What is ex-post evaluation?

Answer 21

Measuring how aid was implemented and whether it was effective however this rarely happens.

Question 22

Why does ex-post evaluation rarely happen?

Answer 22

• Evaluation may be costly
• Outcomes may be difficult to measure
• Lack of will on the part of donors - principle agent problem

Question 23

How does the principle agent problem work with regards to aid?

Answer 23

Aid is collected and distributed by governments charities or NGOs acting as intermediaries between individual-doners and recipients

Question 24

Who finds aid is effective at promoting growth?

Answer 24

Dollar and Burnside (2000). Aid is effective in countries with good policy environments suggesting aid effectiveness depends on the quality of recipient country institutions

Question 25

Who finds aid is ineffective at promoting growth?

Answer 25

Easterly et al (2004), extend the data to more countries over a longer period and find that the findings are no longer significant

Question 26

Why are the results of aid on foreign development so unclear?

Answer 26

• The time frame - payoffs may come later
• Aggregation - no distiniction between projects in research
• Heterogeneity in donors and recipients - can have different effects in different regions

Question 27

What does aid working depend on at the macro level?

Answer 27

• Donor incentives
• The situation in donor and recipient country
• Accoubtability

Question 28

Give some evidence of the effectiveness of aid at the micro level

Answer 28

• Health aid has ed to lower infant mortality in Nigeria (Kotsadam et al 2018)
• Education aid has led to higher enrolment in Cambodia (Ferreira et al, 2017)

Question 29

What is the inconsistency between effectiveness between the micro and macro level known as?

Answer 29

The micro-macro paradox

Question 30

How much has the belt and road initiative invested globally?

Answer 30

Over 1 trillion dollars into infrastructure investment since 2013 across more than 60 countries

Question 31

What have the interests of Brazil, China and India in Africa been described as?

Answer 31

The new scramble for Africa (2006)

Question 32

What do proponents argue about South South Cooperation?

Answer 32

SSC offer developing countries an opportunity to share experiences, expertise and resource based on their common challenges

Question 33

What do critics argue about SSC?

Answer 33

It largely serves the foreign policy objectives of donor countries

Question 34

What does SSC stand for?

Answer 34

South-South Cooperation

Question 35

What percentage of Chinese foreign aid was spent in Africa?

Answer 35

54%

Question 36

What has been the impact of an additional Chinese project?

Answer 36

An increase in GDP growth by 0.4-1.5% points after 2 years, although the impact fades 4 years after initial investment

Question 37

What concerns are often raised from Chinese support?

Answer 37

There are concerns over the debt sustainability in many low income countries:
- Natural resources are often used as collateral for concessional loans
- Projects usually require the contractor to be a Chinese enterprise

Question 38

What are some of the positives from foreign aid?

Answer 38

• The eradication of smallpox
• Near eradication of river blindness and polio
• Green revolution
• Significant reductions in infant and child mortality in Sub-Saharan Africa, Asian and Latin America

Question 39

Describe how the levels of ODA have changed between 1960 and today?

Answer 39

The money volume of official development assistance (ODA), which includes bilateral grants, concessional loans, and technical assistance, as well as multilateral flows, grew from an annual flow of under $5 billion in 1960 to $50 billion in 2000 and to over $153 billion in 2018

Question 40

Describe how aid flows have changed in GNI terms?

Answer 40

The percentage of developed-country gross national income (GNI) allocated to official development assistance declined from 0.51% in 1960 but has fallen to 0.31% as of 2019 well below the internationally agreed UN target of 0.70%

Question 41

Give a statistic of how aid is distributed weirdly?

Answer 41

South Asia, where nearly 50% of the world’s poorest people live, receives $8 per person in aid. The Middle East and North Africa, with well over quadruple South Asia’s per capita income, receives eight times the per capita aid! India, with by far the largest number of extremely poor people in the world, received just $2 per person in aid. And while Jordan, an upper-middle income country, received $299 per person.