7.1 development aid and immigration Flashcards
foreign aid definition + types
= international transfer of goods, services, or capital from a country or international aid agency to a recipient country or its population
types of aid =
- humanitarian and disaster relief
- economic aid: help econ dev, WB does this a lot
- military support
- healthcare programs (kind of part of econ aid)
e.g. Bill Gates, vaccinations
types of donors:
- public aid = official dev. assistance = given by countries: bilateral (country A to country B) or multilateral (group of countries e.g. through UN and WB to country X)
- private (NGOs, charities)
reasons for giving aid
- altruistic/ethical = you do it bc you think it is a good thing to do = other regarding
- compensation for past exploitation
- counter global inequality + want to counter it
- relieve disasters (suffering)
- encourage good governance/human rights/democracy (conditional aid: send it to countries improving these practices) - economic self-interest: dev. or expand markets fora giving country’s goods and services
- e.g. tied aid: give money to buy food, but food has to be bought from the giving country - political/strategic: buy influence for security reasons (military aid)
aid programs often entail ALL THREE, e.g. biggest ever aid program = marshall plan, did it for all 3 reasons:
- Europe was starving -> moral argument to help people
- US wanted Europe to be a large export market for American goods again = eco rationale
- onset rivalry US and SU -> shore-up support in the west, solidify western alliance against the eastern block
reasons for taking aid
helps fund beneficial eco programs, disaster relief, better health care…
but also:
- can benefit corrupt elites (remember the food for oil program in Iraq): they are often the ones getting the aid and redistributing it
- can allow leaders to ignore what their populations want
why might aid lead to less democratic/good governance?
- fiscal bargain: need revenue to govern, can get it through taxes (in return citizens get influence) or through aid (-> no need to give population influence)
the fiscal bargain
all leaders rely on revenue to govern
+ in most societies their citizens hold wealth
-> if leaders want revenue they must BARGAIN with citizens, agree on a “fiscal contract”:
in exchange for taxation, leaders provide political rights and public goods (people allow to be taxed if they get a say in how it is being said)
as demand for revenue increases, leaders must extend political rights or find other ways to extract revenue
simple version =
- need for taxes -> leads to democracy
- no need for taxes -> no democracy
aid flows as non-tax revenue
provides leaders incentive to ignore tax-payers’ demands: provides resources to buy off political supporters with private goods or public goods
- Works best if the group propping up government = “selectorate” is small
foreign aid, remittances, oil rents (if gov makes money off oil, it does not need taxes to get revenue to govern)
*aid flows as form of non-tax revenue, can provide leaders incentive to ignore what citizens want
expectations for aid flows
what would each of these reasons for giving/taking aid suggest?
Altruistic Donors and Recipients:
- recipients want aid to provide public goods for benefit of the people
- Aid flows to poorest countries
- Aid flows to countries with better democracy/human rights records)
- (Maybe) aid flows to former colonies to make up for past exploitation
*also other reasons aid may be going to former colonies
Economic Self-Interest of Donors:
- Aid flows between countries with more trade flows
- Aid flows to countries with biggest potential consumer markets (e.g. India, countries with large populations)
- Aid is largely “tied”
Political/Strategic
- Aid flows to strategic and military allies
- Aid flows to autocratic and corrupt governments (more likely to make strategic concessions in exchange)
- bc easier with aid to buy-off autocracies that only need to buy-off a small political elite rather than democracies that have to buy-off an entire population of voters - (Maybe) aid flows to former colonies to maintain useful political ties
aid flows in practice
Alesina and Dollar (2000, but still accurate)
inefficient, eco closed, mismanaged non-democatic former colony politially friendly to its former colonizer, receives more foreign aid than another country with similar level of poverty, superior policy stance, but without a past as a colony
+ geopolitical alliances: largest predictors of aid is being Israel or Egypt (driven by US foreign policy)
!at the margin countries seem to reward democratization (as you democratize aid increases a bit)
diff between donor countries:
- Nordic countries (Sweden, Finland, Norway) tend to be more altruistic: give more to countries with low income + good institutions and eco openness (*could be part of eco interest and trade)
- France gives based on former colonial political alliances + not sensitive to income or democracy
- US giving dominated by security interests in the Middle East
**total aid flows by income category today: lower-middle-income and least-developed countries get roughly the same -> indicate it’s not just altruism that drives aid
**today share of dev. contracts that are tied = relatively large (e.g. NL still more than 50%)
**US military aid now: given to military and strategic allies in the middle east (Israel, Egypt)
+ humanitarian goes to security interest (Pakistan e.g.) + South Africa
**EU top recipients 2007-2023: Ukraine, Turkiye (to get it to keep the immigrants that try to make it to the EU) = eco and strategic self-interest (eg. India, China important trade partners)
summary aid flows
strategy and political alliances matter a lot:
- foreign aid dropped of dramatically after cold war (before it ended US and SU used aid to shore up political alliances)
- temporary members UNSC get more aid during their terms
eco motives also play a role, especially in how development contracts are written (tied aid is big)
some altruistic motives too (esp. in Scandinavia)
does aid work?
= debate
yes:
- Jeffrey Sachs: eco dev. aid can help countries escape the poverty trap
- low wages, low investment, low eco growth, so wages remain low + low level human capital (education and health) -> less productive
*without injection econ aid from outside, trap diff to escape - Bill Gates: aid related to healthcare has been instrumental in eradicating smallpox and fighting HIV/AIDS, ….
NO:
- William Easterly: too much aid goes to corrupt autocrats + principle-agent problems
- principle/giver has hard time tracing with what happens when the recipient/agent gets the money -> might spend it on other things + don’t get ideas about what type of aid actually helps (don’t listen to people on the ground in what they actually need)
- response to Gates: they are cheap problems to solve, we haven’t bc the aid is not being distributed properly - Dembisa Moyo: aid = free money that makes political leaders worse (it goes to bad leaders and better ones get corrupted by it)
why the backlash against immigration in the west?
- two eco models
bias against low-skilled immigrants
- immigration’s effect on wages (factor model)
- fiscal models of competition for public goods
+ social anxiety, prejudices, racism
factor model with immigration
trade and immigration can be substitutes:
- trade with countries that have diff labor endowments to keep products with scarce factor cheap
- become more abundant in the type of labor you are scarce in through immigration
both options ->
low-skilled labor scarcity -> lower wages for low-skilled workers + increase income of capital owners
in low-skilled labor-scarce countries:
- low-skilled workers should oppose immigration by low-skilled migrants, esp. when trade is restricted
- capital owners should lobby for more immigration when trade is restricted
- trade and immigration should be political substitutes in labor-scarce countries
historically evidence that trade openness is negatively related to openness to immigration (if you have open trade, you need less immigration) (if you have more immigration, you need less open trade)
!!trade and immigration are substitutes
criticism factor model with immigration
doesn’t help understand EU case with free flows of trade AND labor
(model says they’re substitutes -> doesn’t explain situation where both trade and immigration are open)
the bias against low-skilled immigrants should be strongest among low-skilled locals
- survey experiments don’t find this
so maybe, it’s fiscal competition models of competition for public goods
fiscal competition model immigration
immigration can also affect locals’ eco conditions beyond wages: taxes and fiscal transfers
- immigrants that work pay taxes, but they also make use of gov-funded services: schools for their children, child benefits, healthcare, subsidizing housing
competition over the fiscal pie:
- if immigrants are net contributors: gov can increase the pie (more people get more gov services) OR keep pie’s original size (other net contributors have to pay less tax)
- if immigrants are net consumers, the gov. can: increase the pie (recipients get same amount of services, more tax to fund it) OR keep the pie’s original size (recipients get smaller slice of the pie)
->
locals should prefer immigrants who are net contributors to those who consume more gov services
- high-wage > low-wage
- high-skill > low-skill
- those without dependents over those with dependents
empirical evidence = inconclusive about whether people fear higher taxes or fewer gov services
criticisms fiscal competition model immigration
In the long-run, most immigrants add to the economy through labor, consumption etc.
For aging societies, net benefit of adding young workers is very high
Fiscal competition cannot explain why states were closed to immigration before welfare states were created
The model assumes that more public services are funded through tax hikes today (vs. remember, governments can borrow now, pay later)
cultural/sociopsychological explanations immigration
survey evidence on eco factors shaping voters’ opinions on immigration is inconclusive
strong predictors of public opposition to immigration:
- preferences for cultural homogeneity
- overestimating nr of immigrants
- in experiments: culturally threatening cues (e.g. not speaking language)
- ethnocentrism = generalized negative attitudes towards “out-groups”
- anti-immigrant elite and media rhetoric
