Week 1.2 - Development Aid Flashcards
What are the political challenges currently facing foreign aid?
Foreign aid is politically challenged now more than ever due to views of right-wing populist politics in donor countries
What is the increasing role of private financial transfers in foreign aid?
The increasing role of private financial transfers can be seen in the SDGs reliance on private flows, such as portfolio investments and Foreign Direct Investment (FDI)
Why are aid budgets being cut?
Aid budgets are being cut everywhere due to economic problems in rich countries
What are the problems associated with the delivery of aid?
The delivery of aid has always been plagued by problems of accountability and evaluation
What are the conflicting purposes of aid?
The conflicting purposes of aid include geopolitical purposes, developmental purposes, commercial purposes for donor countries (strategic resources and markets), and capturing benefits by private actors in recipient countries
What are the main categories of aid?
The categories of aid include official development assistance (bilateral aid, multilateral aid), humanitarian aid, military aid, aid from NGOs, and private aid from philanthropic organizations (distinct from commercial lending and foreign investment)
How has the US historically used foreign aid for geopolitical purposes?
The US development agenda has historically been driven by a security agenda, with foreign assistance focused on providing military, economic, and technical assistance to friendly nations for international peace and security
This includes various administrations like the 1950 Administration and Mutual Security Technical Cooperation Agency (1951), the 1953 Foreign Operations Administration, and the 1955 International Cooperation Administration
What did the US Foreign Assistance Act of 1961 declare?
The US Foreign Assistance Act of 1961 declared that the individual liberties, economic prosperity, and security of the people of the United States are best sustained in a community of nations that respect individual civil and economic rights and freedoms and work together to wisely use the world’s limited resources in an open and equitable international economic system
How has military aid been handled historically?
Military aid has had little scrutiny, military aid programs are not monitored, and the data is often oblique and difficult to access
There is no body within OECD comparable to the DAC that monitors military aid
What is Official Development Assistance (ODA)?
Official Development Assistance (ODA) is provided by official agencies (not private) to developing countries for economic development and welfare (not for trade or military), and is concessional with a grant element of at least 25%
What trends have been observed in the allocation of aid?
Trends in aid include an increased role of NGOs (e.g., from $1 billion in 1970 to $7.2 billion in 1990), increased private philanthropy (e.g., Gates Foundation’s $6.5 billion/year in 2013-2015), less aid to productive sectors (e.g., agriculture, forestry, and fishing decreased to 2/3), increased focus on gender and environmental crises, and making people living with disabilities visible (e.g., UN 2019 Disability Inclusion Strategy)
What are the three enduring issues in aid delivery?
The three enduring issues in aid delivery are “Tied Aid,” “Technical Assistance,” and the debate between “programme versus project aid”
What is the issue with “Tied Aid”?
“Tied Aid” refers to aid that requires recipient countries to purchase goods and services from donor countries, as exemplified in the UK scandal involving Pregau Dam in Malaysia (1993-1994), where Malaysia was required to buy military equipment from the UK
What does the Paris Agreement on Aid Effectiveness (2005) advocate for?
The Paris Agreement on Aid Effectiveness (2005) advocates for working within government systems through “programme lending” and avoiding narrow, conservative projects, to enhance aid effectiveness
What is Easterly’s critique of aid effectiveness?
Easterly critiques aid effectiveness due to the lack of accountability in aid programs, lack of scientific evaluations, and inefficiencies in aid delivery
He advocates for the use of randomised control trials (RCTs) in cash transfer programs
What is the foundation of Easterly’s skepticism towards aid?
Easterly’s skepticism is based on a historical tradition of skepticism (e.g., Bauer, 1968), issues in planning, information and incentive problems, governance issues, and the failure of collective action, exemplified in the “Big Push” theory
How does Dambisa Moyo critique aid?
Moyo critiques aid by agreeing with Easterly’s skepticism, demanding an end to wasteful grants, and advocating for micro-credit, FDI, trade liberalization, and remittances as alternatives to aid
What is Milanovic’s response to Easterly’s critique?
Milanovic argues that aid is mainly for political and strategic purposes, that Easterly’s searchers need the state, and that aid should ensure progressive transfers from the rich to the poor countries, while criticising the immorality of randomised control trials
What is Lall’s response to Easterly’s critique?
Lall argues that aid bolsters corrupt governments, that aid simply assuages Western guilt, and that Western countries should stop aid to Africa and just open markets
What is Radelet’s response to Easterly’s critique?
Radelet argues that aid has contributed meaningfully to growth, particularly in health programs, and that the use of aid for growth has shown positive impacts, even though results vary by context
What is Fischer’s structuralist perspective on aid?
Fischer argues for a structuralist approach, stating that aid is useful as long as it promotes structural transformation and helps build productive capacity, allowing countries to run trade deficits and support higher value exports over time
How should the effectiveness of aid be assessed?
The effectiveness of aid should be assessed by judging whether it contributes to increasing productive capacity and asking whether it enhances or weakens state capacity
What is the concept of “matching aid” in state fiscal capacity?
“Matching aid” refers to aligning aid with improvements in tax collection, using government systems for aid delivery, avoiding a “dual public sector,” and employing sector-wide approach (SWAp) projects in areas like health and education
What are the challenges in strengthening a state’s statistical capacity?
Challenges in strengthening a state’s statistical capacity include flawed data, the need for funding agricultural and labor market surveys, and the recognition that statistics are expensive and can be divisive
What is the role of “New Donors” and South-South cooperation in foreign aid?
New donors like China, India, Brazil, and the Gulf countries are involved in grants, concessional loans, barter trade, FDI, and commercial loans, and are creating new forms of developmentalism with potential issues of “tied aid” and “debt dependency”
What is China’s role in African development?
China’s role in African development includes acquiring natural resources (e.g., strategic minerals for EVs), developing production platforms in agriculture and manufacturing as Chinese wages rise, and creating new markets for Chinese goods and services
What factors determine China’s role in African development?
China’s role in African development is determined by domestic politics, national development strategies, and investments in natural resources
What impact do MAGA policies have on aid and access to markets for developing countries?
MAGA policies weaken international organizations and law, instrumentalize the World Bank and IMF, retreat from the climate change agenda, and restrict developing countries’ access to US and OECD markets (e.g., AGOA in Africa)
What are the key recommendations for improving aid effectiveness in the future?
Key recommendations include demand-driven aid, supporting national development strategies, undertaking pilot programs, avoiding aid misuse, strengthening state capacity, supporting long-term engagements, and encouraging integrity in private development consultancies
What are the benefits of demand-driven aid?
Demand-driven aid is likely more effective as it reduces the incentives for misuse of aid when organisations like the World Bank, USAID, FCDO, or SIDA arrive with earmarked funds and predesigned programs
What lessons can be learned from the success story of US land reform programs in East Asia after WWII?
The success of US land reform programs in East Asia included seeking out local politicians and organizations advocating land reform, conducting local investigations, and implementing programs through village committees
How do aid programs affect local configurations of power?
Aid programs inject resources that always have an impact, reducing locational, identity, and gender inequalities
What are the future recommendations regarding national development plans/strategies?
Future recommendations include encouraging recipient states to identify priorities, needs, and programs for national development strategies
What is the significance of pilot programs versus randomized control trials (RCTs) in aid programs?
Pilot programs, as used in Chinese development programs at home, are more effective than RCTs, although it is unclear if China uses this approach abroad in its aid programs
What recommendations exist for designing aid programs that do not sap scarce state capacity?
Aid programs should avoid creating reporting burdens on recipient countries with different systems, and should instead build capacity within states (e.g., Rwanda’s Revenue Authority) to engage with the private sector and assess activities
What is the role of state organisations in channeling resources and decision-making in aid?
Resources and decision-making should be channeled through state organisations to avoid parallel delivery mechanisms that weaken national and local systems, such as HIV/AIDS councils, and enhance technical and political budgeting within public organisations
What is the recommendation for supporting long-term engagements in aid work?
Aid workers should learn local languages, understand history and society, stay long enough to build confidence, and avoid staying in expat communities
What is the importance of integrity in private development consultancies?
Private development consultancies should promote integrity by rejecting plagiarism, relying on well-trained local consultants instead of expatriates, and ensuring sound and original work
What are the two tragedies of poverty as described by Easterly (2006)?
The two tragedies of poverty are that extreme poverty causes suffering, preventable diseases, and limited access to education, and despite $2.3 trillion in aid over five decades, basic needs like medicines, bed nets, and education remain unmet
What is Easterly’s view on the ineffectiveness of aid?
Easterly argues that aid has failed to promote economic growth, policy reforms, democracy, or honest governance, pointing to $568 billion spent on Africa with no significant improvement in income levels over 40 years
Aid agencies lack accountability, contributing to inefficiencies and waste
What are “structural adjustment” loans and why do they fail according to Easterly?
Structural adjustment loans are aid loans conditional on policy reforms
They have failed in Africa, the former Soviet Union, and Latin America, with both policy reform and economic growth proving unsuccessful, suggesting that aid results in less democratic and honest government, not more
How does Easterly compare economic progress in India and China to Western aid efforts?
Easterly argues that citizens in India and China raised their own incomes by $715 billion through free market efforts, whereas the West was agonizing over a few tens of billion dollars in aid
Economic progress is better achieved through local entrepreneurship and reforms
What are the two key elements necessary to make aid work according to Easterly?
The two key elements necessary to make aid work are feedback and accountability
The absence of these elements has been fatal to aid’s effectiveness in the past
What issues are associated with the lack of accountability in aid programs?
No single agency is responsible for aid failures, and evaluations often lack independence, such as the World Bank’s Operations Evaluation Department (OED), which has shown limited impact on changing the behaviour of aid agencies
What was the significance of the OED’s findings in 2004 regarding aid effectiveness?
The OED (2004) indicated that 8 “influential evaluations” influenced actions of borrowers in 32 ways, but only 2 instances affected the behavior within the World Bank itself, with one leading to a negative outcome
How did the case of Mali challenge the effectiveness of evaluations in aid programs?
In Mali, the largely positive findings of evaluations did not align with the poor development outcomes observed over the same period (1985-1995) and the unfavourable views of local people, questioning the real impact of evaluations
What role does feedback play in aid effectiveness?
Feedback ensures that aid aligns with the needs of beneficiaries, with market demand informing firms and voters holding politicians accountable
How does true accountability work in aid programs?
True accountability occurs when an aid agency takes responsibility for a specific, monitorable task aimed at helping the poor, with outcomes depending almost entirely on what the agency does, thus creating strong incentives for performance
What is PROGRESA, and what were its results?
PROGRESA (Mexico, 1997) was a program providing cash grants to mothers if their children kept in school, participated in health education, and visited health clinics
A randomised control trial in 506 villages showed significant improvements in health, education, and reduced illness incidence.
What lesson for aid reformers can be drawn from the success of PROGRESA?
The success of PROGRESA teaches that combining free choice and scientific evaluation can build support for aid programs, where effective programs can be expanded rapidly
What is the criticism of current aid models?
The criticism of current aid models is that big global goals like the Millennium Development Goals (MDGs) lack accountability, and multiple agents sharing responsibility dilute individual accountability for results
What is Easterly’s view on the role of aid in general economic or political development?
Easterly believes that aid cannot drive general economic or political development but can address specific needs
What are Milanovic’s key criticisms of Easterly’s argument on aid?
Milanovic critiques Easterly by noting that the $2.3 trillion figure includes a mix of bilateral aid, concessional loans, and commercial loans (not all aid), and that loans should not be conflated with aid
He also highlights that aid serves political, strategic, and domestic economic purposes and criticizes Easterly’s dismissal of these motives
What is Lall’s critique of foreign aid?
Lall argues that governance issues and systemic inefficiencies render foreign aid largely ineffective or counterproductive, and that aid often serves donor interests and guilt rather than addressing real needs in recipient countries
He suggests that domestic governments, not foreign aid, are key to achieving sustainable development goals
What is Radelet’s response to Easterly’s claim that aid is a “miserable failure”?
Radelet argues that Easterly’s claim is overly simplistic and one-sided. While aid is not a magic solution, it has contributed meaningfully in some circumstances, such as economic growth in South Korea, income tripling in Egypt, and near-eradication of polio
Different approaches are needed for different governance contexts
What is the principal concern of ‘structuralist’ pioneers of development economics?
The principal concern of structuralist pioneers is understanding structural impediments faced by countries undergoing late industrialisation and rapid urban growth, such as chronic trade deficits, foreign exchange shortages, and persistent balance of payments disequilibria
What do current debates on aid overlook, according to structuralists?
Structuralists argue that current debates overlook the dual logic of aid’s potential to run trade deficits in the context of national industrialisation strategies, and that this potential is lost if countries run trade surpluses
What are the key characteristics of late industrialisation?
Key characteristics of late industrialisation include large technological gaps, dependency on imports for capital and intermediate goods, and rapid population and urban growth
What internal and external impediments to growth are identified by structuralists?
Internal impediments to growth include issues like food production or technological capabilities, while external impediments include import dependence and foreign exchange constraints, which are seen as structurally inherent aspects of late development
How do structuralists view the role of aid compared to modernisation theorists?
Structuralists view aid as a tool to enable productive trade deficits and to mitigate external vulnerabilities and industrial bottlenecks, while modernisation theorists, like Rostow, focused on socio-cultural impediments as barriers to development
What is the Two-Gap model (Chenery and Strout, 1966) in structuralist thought?
The Two-Gap model recognizes the limits of industrializing countries to expand export earnings quickly enough to earn foreign exchange required for complementary imports, highlighting the need for aid to address structural trade imbalances
What was Prebisch’s view on trade deficits and aid in the 1950s?
Prebisch identified external trade deficits as structural issues in developing economies and stressed the need for aid to address these structural trade imbalances
What were Hirschman’s insights on structural impediments to development?
Hirschman emphasized that domestic food production and foreign exchange are critical bottlenecks to development, and early dependency theorists (e.g., Furtado, Sunkel) highlighted external and internal disequilibria caused by dependent industrialisation
What is the ‘Dutch Disease’ in the context of increasing aid to poor countries?
‘Dutch Disease’ refers to the negative economic effect where increasing aid to poor countries could lead to currency appreciation, undermining the competitiveness of domestic tradable sectors, particularly when the country runs a current account surplus
What is the critique of contemporary aid debates according to structuralists?
Structuralists argue that modern critiques of aid, such as those by Easterly, Collier, and Sachs, dismiss structuralist insights and fail to account for structural trade imbalances in evaluating aid effectiveness
How do structuralists view aid effectiveness in relation to trade deficits and industrial policies?
Structuralists support trade deficits tied to productive investment and emphasise the need for countries to implement active industrial policies to direct investment
They also advocate for long-term concessional finance to ensure resource transfer to the poorest
What is the importance of enabling late industrializers to manage structural trade imbalances?
Enabling late industrialisers to manage structural trade imbalances without penalties from financial markets is important for ensuring that aid supports productive investment and promotes industrial growth
What type of economies have experienced the best growth?
Developing countries with a greater share of manufacturing in labour-intensive sectors
How does aid affect different economic sectors?
Aid slows the growth of labour-intensive and exportable sectors while capital-intensive and non-exportable sectors grow faster
What does evidence suggest about aid’s long-term impact on growth?
Aid’s long-term impact is elusive, even in countries with good policies; recent studies show no robust association between aid and sustained growth
How can aid weaken institutions in the long run?
Aid can increase dependency and corruption, weakening governance
How does aid affect a country’s competitiveness?
Aid inflows can lead to real exchange rate overvaluation, reducing competitiveness in the traded goods sector
What is ‘Dutch Disease’ in the context of aid?
Aid inflows increase demand for non-traded goods, leading to higher prices and making traded goods less competitive internationally
How does aid cause real exchange rate overvaluation?
In flexible exchange rate regimes, aid pushes up the nominal exchange rate, making exports uncompetitive
In fixed exchange rate regimes, spending aid on domestic goods raises costs for key resources (e.g., skilled labour), harming internationally competitive industries
What is the relationship between aid and real exchange rate overvaluation?
Aid inflows are positively correlated with overvaluation, and this relationship strengthens over time
How does aid reduce a country’s competitiveness?
By causing exchange rate appreciation, increasing wages in non-traded sectors, and making labour-intensive exports less profitable
How can aid’s negative effects on competitiveness be mitigated?
If aid is spent on traded goods (e.g. imported capital goods, foreign consultants), goods in abundant supply (e.g. unskilled labour), accompanied by fiscal adjustments to prevent excessive wage increases
What is the impact of aid on existing firms and new market entry?
Initially squeezes profitability in existing firms
Discourages new market entry
Eventually forces existing firms to close down
How are aid and remittances similar?
Both are “unrequited” financial flows that do not need to be repaid fully
How are aid and remittances different in their effects?
Remittances tend to persist only in well-managed economies that avoid overvaluation.
Aid inflows often cause wage growth and exchange rate appreciation, making trade uncompetitive
Why do remittances not cause the same adverse effects as aid?
They are often spent on housing and local goods that increase demand for unskilled labour without raising wages in export industries
Remittances dry up if the exchange rate becomes overvalued, preventing persistent distortions
How does aid contribute to economic dependency?
By reducing competitiveness in traded sectors, forcing countries to rely on future aid rather than self-sustaining economic growth
What happens when a government reduces borrowing from the banking system due to aid inflows?
It increases credit availability for the private sector, providing more resources for investment
Why do aid effects vary across time and studies?
The estimated impact of aid depends on the time horizon chosen, the period studied, whether a fixed-effects model is used, whether aid is treated linearly or non-linearly
How does the manufacturing sector differ between Asia and Africa?
Asia has a higher concentration of labour-intensive industries (0.6) than Africa (0.47)
Aid inflows shrink labour-intensive export sectors, which have been critical for fast-growing economies
When did the UK start employing consultancies for aid projects?
Since 1964, with approximately 40% of aid budgets going to technical assistance
How were for-profit consultancies historically funded?
They received bilateral funding from both donor and recipient countries
What was the role of for-profit consultancies before the New Public Management (NPM) era?
Provided technical assistance rather than broad policy reform
Their role was inherently political but obscured tensions between donors and recipients
How did New Public Management (NPM) influence DFID’s use of consultancies?
DFID projects were already outsourced
The Logical Framework Approach (Logframe) focused on planning and evaluation, not procurement
Aid was seen as a space for participation, empowerment, and control rather than just efficiency
How did aid sector outsourcing change under Clare Short?
Shifted towards aid effectiveness and decentralisation, reducing consultants’ roles to technical expertise
What are the two main types of for-profit consultancies in the UK aid sector?
Large transnational multiservice firms
Smaller specialist development management consultancies
How did the development of consultancies in the UK differ from the US?
The US developed earlier, focusing on agriculture and engineering before expanding to general consultancy
The UK and Europe expanded more gradually, merging with accounting and audit firms (e.g. Big Four)
How did the role of for-profit consultancies expand after 2010?
Conservative government reforms outsourced more aid functions
Greater focus on external oversight and results-driven aid
What factors led DFID to outsource beyond technical expertise?
Staff shortages for compliance work
Doubts about recipient states managing aid effectively
Need for greater financial tracking
Aid shifted to fragile states, requiring technical expertise
Good governance standards required stronger audit mechanisms
How has UK aid shifted towards private sector financing?
Aid is now aligned with private interests rather than just poverty alleviation
Aid has shifted from a public good to a political tool
Financialisation of aid (introducing speculative finance and impact investing)
How did DFID’s financial sector spending change between 2012-2016?
Banking and financial services £155.6M → £392.6M
Business support services £30.8M → £89.8M
Production sector support £269.2M → £521M
How are for-profit consultancies shaping development policies?
They not only implement aid policies but actively shape aid discourse and practices
Aid is now designed around efficiency and financial viability rather than empowerment and local needs
How does consultancy-led aid differ from traditional development approaches?
State-led aid was embedded in recipient countries
Global consultancies focus on standardised expertise over local engagement
