L15 Flashcards
Types of foreign aid
Humanitarian (food, infrasturcture, medical support given after crisis) Development aid (from rich to poor to achive long term economic development)
Types of development aid
Official development assistance (ODA, from rich government to poor, official list that can recive, grants or soft loans)
-Bilateral (from country to another, tied or untied)
-Multilateral (from country to another through international organization)
Official assistance (between relatively high-income countries)
Private volentary assistance (NGO, religous etc.)
History of aid
19th century when sending money to colonies but with specific motives
1950-give aid to accelerate GDP
1960-Increase in share of multilateral aid and development objectives of GDP growth and employment
1970-poverty reduction (cold war as hidden strategies)
1980-world crisis (oil) lead to debt crisis. Conditions with loans such as restructure economy, liberalization of trade, privatize economy and descale state
1995-less conditions and countries need to decide themselves what is best solution. Measure impact of aid and decrease of aid when cold war ended. More detached from former colonies
Aid today
Countries that have more open economy are 20% more likely to get aid
Countries that have colonial past receive much more money
Egypt and Israel receive much more
-> colonial past and UN voting patterns seem to be much more important than political institutions or economic policies
Geopolitical and strategic motives matter a lot
If that is the case, does aid actually contribute to economic development??
Reasons for giving aid
Altruism (Give so that the country can develop, It will help country to develop economy) Economic interests (Ties like trading) Geopolitical and strategic objectives (Some countries only give money to the countries that have similar values and vote like they do) Legacy relationships (Historical ties between countries)
The aid debate -belivers
Enable the poorest of the poor to get their foot on the ladder of development
Need to push countries out of poverty trap
Geographic factors such as poor soil, droughts, rugged terrain, landlocked, ecological conditions that leads to diseases etc. cause countries being poor.
Combinations of these things make countries in need of aid
Need much more foreign aid to fill gap between what countries have and what they need.
What to do? Do a lot of things in one time. Reinforce each other and depends on each other.
Fertilizer
Improved seeds
Health clinics
Rainwater…
Argues that if we do this it would end the poverty
Poverty traps for a country
Fiscal trap - in order to develop country need to have infrastructure, healthcare, education but if do not have money to invest in that countries get stuck. If poor country can not raise tax or the government is corrupt.
Demographic trap - poorer countries have high fertility rate which makes it difficult to get out of poverty and next generation also stays poor
Aid debate - sceptics
- No systematic evidence of poverty traps
Sachs claimed that the poorest countries grew 0 % but actually 20% of poorest countries in 1950-1980 grew significantly
Some of poorest countries became success stories without a lot of foreign aid
China and India is also examples driven from market and not aid
If the viscous cycle of poverty trap how can countries fall into poverty
No systematic evidence that all of these countries are stuck in poverty traps even though some might be - Not strong evidence for the effectiveness of aid on growth
Some studies show positive impact but sometime it can be negative
Only good for countries with good institutions - Bad government matters more than poverty traps
Corruption leads to lower growth - Social engineering vs Piecemeal reform
Better to have gradual reform
Searches = try to find answers to specific problems, bottom-up
Need these insiders to come up with correct solution to problem
Planers = believe that outsiders have solution and try to impose solutions top-down but this does not work
Come up with right incentives to that solutions will be innovated and implemented
Should also be held accountable for the results
Develop mechanism for recipients to give feed-back and hold the ones that made solutions accountable for feed-back - Development is not a technological problem
It is not a matter of having the right money and implement technology that exist
But social causes of poverty, incentives of people that need to implement solutions for problem and control where resources is going
-»>Improve aid, Focus on searchers instead of planners, Stimulate innovation instead of big plans
Aid debate - some things work
Test what works
RTC with focus on small questions
Which interventions are most effective
Conclusion aid
• Micro-macro paradox
Small-scale studies show promising results but large-scale country-level studies show no clear evidence that is works
Money does not always go to countries that need it the most and this impacts the effectiveness
A lot of issues with top-down programs
• Information
As outsiders it is not easy to know what people need, what will work, what it will cost etc.
Need insiders to get the right information
• Incentives
How do you convince people to actually implement the project?
• Evaluation
Need good evaluation to see if aid works
Many aid do not get evaluated or do not get evaluated in good way
Now there is more and more pressure to have transparency in aid works and to be held accountable for outcomes
