Foreign aid-economic development

Background

United Nations Relief & Rehabilitation Administration

Aid war-ravaged countries and newly freed colonies

Types of Foreign AID

Non-governmental organizations

Boone (1996)

Effects of foreign aid using two human development index, infant mortality and education

Two measures of foreign aid, official bilateral aid from government and aid projects by NGOs

NGO aid reduces infant mortality and does more effectively than official bilateral aid

Aid can be effective when policies are good

Bad policies and corrupt government leads to misallocation of aid resources

NGOs are more effective than official bilateral aid as their motivation is widely perceived as mainly altruistic

Certain advantages and disadvantages

Influence nature outcome of Foreign Aid

• corrupted political system
• good policies reap the benefits

Improvement start from policies

Does Foreign Aid Reduce Poverty?

Germany set a schedule in 2005

In 2002 countries agreed to donate 0.7% of national income to poorer countries or 195 billion

France agreed in 2002-2003

Foreign aid agreement 2002

Foreign aid stimulates economic development in the receiver’s country

e.g. better infrastructure and more education

USA and Japan are yet to schedule a payment

Hard Facts

Economic growth

e.g. increased levels of production

• Since 1970s over $2 Trillion dollars of aid spent

• Sub-Saharan African nations poorer now than 40 years ago

• Latin America, Middle East and South Asia have made slight progress on poverty

• Only East Asia has experience rapid reduction in poverty and will achieve millennium goal

• Less people under $1 but more under $2

FAILURE FOREIGN AID

Governance & Corruption

Due to improvements in technology like computers, the availability of wealth has increased thus increasing the level of wealth distribution

Inflation & Debt

Large influx of capital

Dutch disease

Cost push inflation

Uganda bond issue

More debt to cover debt

NGOs have shown to allocate aid according to the “right” incentives

Governance & Accountability

• Governance matters

• Corruption cripples the effectiveness of aid

• ODA vs NGO

• Taxation the glue of society

• Economic incentives

Political Depression

NGO aid have been conducted solely at the project level

• Political interest

• Terms and structure of aid

• Continued enforcement of failed policies

• Free trade policy

GROUP 5A

Yue YU

Henri Mechin

Johan Rahman

Hinson Li

Foreign AID

As a result avoids misallocation of resources and misuse which is mainly found in official bilateral aid

Donees

Donors

Israel over the past 10 years has received over $23 753.5 million in foreign aid from USA alone

Non government organisations provide 15-20%

80-85% is provided by government sources

USA donated 21.8 Billion US towards development aid

Germany $12.29 billion

France $9.88 billion

UK $9.85 billion

Egypt received annually 1.3billion from USA

Donors

High-income of developed countries

resources of capital, goods, or services

• Economic

• Financial assistance

• Technical

• Military

Donees

less developing countries

Foreign AID

Began in the 18th century

Prussia Subsidized

It is the material of logistical assistance provided to countries in response to a crisis such as a natural disaster

Donees motivated by the desire to support to

Main purpose is to meet nutritional needs of third world countries and promote economic development

Food Aid

Political Allies

Trade Partners

Expand Markets For Exports,

Reduce National Poverty

Military & International Security

Humanitarian Aid

Funded by donations from individuals, businesses and governments

Since end of WWII

Sophisticated Instrument Of Foreign Aid Policy

The main objective is to save lives, reduce suffering and maintain human dignity

USA provide 60% of food aid

Military Aid

Development Aid

Measuring the Effectiveness of Foreign Aid

• Used to assist an ally in defence efforts

• Help given by government and other agencies to support the economic, social, political, environmental development of developing countries

• Help a poorer country maintain control over its own territory

• Buying weapons and equipment from the provider of military aid

• USA is the largest contributor of military aid

• Focuses on reducing poverty in the long run

• 1.3 billion sent annually to Egypt

Burnside and Dollar (2000)

Conclusion