Lecture 7: Does Aid do more Harm than Good? Flashcards
Overseas Development Assistance(ODA)
“Government aid that promotes and specifically targets the economic development and welfare of developing countries…and is concessional.” (OECD)
All involve Conditionalities!
- Grants
- Loans with below-market interest rates
- Debt relief
- Direct supply of goods and service
Remittance;
money flow from workers in the west giving it back to their home countries; way bigger than aid and FDI.
How does aid promote development?
Three logics of aid:
- Saving lives
* Purely short-term humanitarian aid (food, medicine) - Aid as financing investment
* Developing countries are too poor to finance their own development
Eg. healthcare costs $50 per person per year, with average incomes of ~$500
Breaking a poverty trap with a ‘big push’
* Private markets cannot finance risky investments in poor, low-productivity, places
* The costs to developed countries are small; target of 0.7% of developed country GDP - Aid as a lever for good governance reform
* Developing countries don’t need more resources - they waste what they already have through the resource curse and corruption
* Investment requires better institutions and ‘good governance’
* ‘Buying’ good governance through conditionalities
Aid on economic growth:
- The transfer of resources should directly boost growth
- But the bulk of the evidence shows no effect
- Aid does benefit the poor more than the rich(Hirano and Otsubo 2014)
- But aid boosts consumption, not investment
On economic growth
failed aid projects
White Elephants – Projects that are large, expensive, and ultimately ineffective because they don’t align with local needs or context.
Example: The Lake Turkana fish-freezing factory in Kenya failed because fishing wasn’t culturally valued, and infrastructure to support it was lacking.
Unsustainable Solutions – Projects that are too difficult to maintain or repair locally.
Example: PlayPumps required hard manual labor, broke down often, and couldn’t be easily fixed by local communities.
Unforeseen Consequences – Well-intentioned projects can unintentionally cause harm.
Example: Iron supplements increased children’s vulnerability to malaria in certain regions.
Aid and Governance/Democracy
On ‘Good Governance’:
Formal Institutional Change: Yes! (Isomorphic mimicry)
Institutional Strengthening: Hard to measure
Example: WB project in Tanzania had zero impact
Risk: Aid can worsen governance
On ‘Democracy’:
Encourages Democratization: Especially in 1990s Africa
NGO Support: Protects minority rights (e.g., Human Rights Watch)
Doesn’t Prevent Backsliding: Examples - India, Nicaragua
Risk: Aid can prop up dictators (e.g., Zaire, Chad)
Aid creates problems of coordination
- Too many donors
- Too many projects
- Each requiring separate project management, reporting and accountability structures
o ‘Project Implementation Units’ - Many countries have no idea what donors are doing in their country
Aid causes corruption
- Large flows of rents
o US$700m to President Mobutu’s regime in Zaire in a decade
o Propping-up corrupt regimes - Resource Curse: Rents focus politicians on ‘accessing’ government
- 7.5% of aid is diverted to tax havens
- Corrupt countries get just as much aid
- The Development ‘Industry’ is judged by how much money they disburse, not its impact
if aid does not work most of the time why keep giving aid?
Aid creates dependency
* Paternalism/neo-colonialism:
* Dependency on western ideas/experts
* Influxes of food aid push down prices, discouraging domestic agriculture
* Vicious circle: Failure -> more aid
* Causing political instability, eg. competition for food aid in Somalia, diversion to
finance security forces, eg. Uganda
* Avoiding crises that force political change, eg. Zambia’s copper crisis was cushioned by aid (the Zambian government survived)
it doesnt work… solution? give more
Dependency Theory
Development is constrained by developed countries’ past and current
economic and political power
Aid prevents a social contract
Prevents Social Contract:
Reduces need for domestic taxation
Lowers local political ownership and accountability
Challenges:
No local debate to determine policy
Isomorphic mimicry: Adopting ‘best practice’ without adapting to local needs
Aid becomes a ‘technical challenge’ rather than addressing political dynamics
Aid as an Anti-Politics Machine:
Focuses on technical solutions, ignoring political context
Governments become accountable to donors, not citizens
Example: USAID in Afghanistan - effective health programs were suspended due to lack of receipts, highlighting donor concerns over corruption over real outcomes.
Aid Bypassing the State to NGOs
Key Points:
20% of bilateral ODA went to NGOs in 2011
NGOs provide humanitarian relief, social services, community mobilization, and fight corruption
Challenges:
Distraction from improving the state:
NGOs may focus on short-term goals, neglecting long-term state improvement
Neoliberalism:
NGO involvement can reinforce neoliberal ideologies by bypassing state institutions
Brain Drain:
NGO salaries in Ethiopia are 2-10 times higher than civil service, drawing talent away from the state
Undermining State Legitimacy:
Politicians not held accountable for failures
NGOs act as a safety net, allowing the state to fail
Limitations of NGOs:
State’s Role in Nationwide Transformation:
Only the state can enforce rules, provide security, and build long-term social contracts
NGO Dependency:
NGOs may focus on chasing grants rather than fostering sustainable development
Why give aid to other countries?
Altruism
Aid goes to the most needy countries.
Preventing Spillovers
Aid helps mitigate poverty, refugees, pollution, terrorism, and instability in neighboring countries.
Geopolitical Interests
Aid goes to trading partners, ex-colonies, and UN Security Council members to maintain influence (“Soft Power”).
Domestic Politics
Aid can enhance a country’s global image and boost political support by addressing needs or promoting national interests.
Domestic pressures, such as voters’ concerns about corruption, shape aid priorities.
