Literature review + Effectiveness of aid Pros Cons + Effectiveness of ald = Cons + Determinants of aid flows (donors) No solid evidence on relative importance of different variables «different donors have different reasons ‘Skepticism about effectiveness of aid + Do the patterns of aid giving contribute to the ineffectiveness? ‘#To explain behavior of bilateral donors ‘In aggregate and individually ‘#0 see the relative importance of political strategic interests of donors by: taetr eels Rit ea eee 4. ~~Pear LUterature on Foreign Ald Etta of Aid ues) Literature on Foreign Aid{Datrminants of Aid >» Schrander, Hook Taye (1998): Concentration on Ain dane tt wort order, eratesic mearost,Tlstonstp ath emt creme Yo A en OREO “eevee, tea wR “Hore test fo a nae ne UTE MEAS oF Drea Ve ‘Data [erage of 5-year perade(1970-74, 73:73, 8080 85:89, 904) aeneerae coretion 09 mth darcy vorbe, Fedorce oa nae) ns += Poltical-strategic variables explain better than measures of poverty, democracy, policy in FDI regressionsSACU a ne} General Interpretation 1, Colonial Past: highly significant ‘+ Own vs of anther donor, number of colonies 2 E + Political alliance as an important : determinant ae 3. Egypt and Israel: very significant for the US regressions POD ae LaLa eC) ge variations among donors (e., Nordic vs Japan/France) Asymmetry In donors’ reaction to opposite events 5. Openness: little importance Benne - 6. Democracy: clear differences between donors pie oe (e.9., US vs France) 7. Religion: little influence + _ No systematic response to economic policy reform = to:Democracy causes aid increase, but no causation in.bial UC et RCN eS Qi: Whether pattern of aid giving in advanced Industrialized countries contributed to failure of aid Inreducing poverty and enhancing growth? considerable evi FURTHER ANALYSI! Z |Silocaton with poverty, democrecy amd good plc(Q2: Whether aid has been used to foster process of democratization? © Despite cross-country differences ex; ‘While ald responds more directly to “political” openness, FDI responds more directly to" improvement in policy management, tra better protection of property rights) Q3: Strategic interests vary among donors? + US in the Middle East 1 France with the former colonies {2 dapan on investment and trade relationshipCd (multilateral) to recipients? . +. ‘# This analysis would provide understanding * of why the nature and volume of aid is what .2 they are = variation among donors and between "periods. Round and Odedokum (2003) ote Yas nat cone as Anat (arctan ano Ae oan Be Gea Cue ueibdbdieeeROr een eS) * Grand total average lowest in 1970-808 However, 4 Individuals. a increasing generosity ratio. * Only Nore countries met UN recommended target ee chew ‘Sita | $ USS. being lowest donor I * Welfare countries show increasing generosity ratio 2. Trends, E ¢ Wide temporal v Dr ey ‘ How donors are to be assessed and compared with Fespect to thelr ald effort? ee wate re rena age eee (100 197) isin arg efincome ot pase 3% oe popes | ~ enue ae Gonna) Pann 20 om es fom ‘# most objective measurable indicator of donor as estas pa come Ra ‘he sete of td gven, as normalized by donor ba income level. > Generosity Ratio (CAR a. me{hat ne polarization exat 0 value) checks and balances indiestore: records numberof veto players {nly one party (as opposed ta coaltion of partes) frm the {$ 1970-1999 unbalanced pane! detaset, 22 donor counties 015, cross-section (country) fin inl estates for G7 it member afects the megresOctober 4, 2012 a Determinants of aid allocation + From last wel... variables that affect blates Slecation povarty(ncome evs), portion, poy eo) ald ‘colonial history, poticlallance(UN fiend), commercial Interest(trade/investment relatonship. domestic politics, publ support, peer pressure ‘ Comparative approach 1 Between donors = US, Japan, Germany, France, Nordic Donors, EU + Between time periods + Cold-War ere, after end of Cold War, after 9/11 + In Allesina & Dollar (2000) + Colonial statu s defined as numberof years since 1900 In which a country was nota colony ' Most of Spanish colonies won independence or were taken by ‘other Western powers in 1800s, * Ate tum ofthe 20th ceotuy, Spainei lv aran tnttores ne | Aid Allocation Studies: Approaches + RN/DI model + recipient need / donor interest + “hybrid model + both RN & DI and other variables ‘biases’ approach + population bias, middle-income bias Limited dependent variable model + Two stage process: eligibility & amount allocated = Choice of variables & proxies “Tov Nominal a, sf, o's bupt oR GFComparison of 4 + Germany, Netherlands, UK (Clist 2009) + Large differences between donors {es ide 2008) 3 ote + Little changes over ti policy in donors’ aid al iid | I neon nr mcmWhy donors give aid? + Various motives of Foreign Aid «| Moral obligation/Humanitarianism 1 To assist recipients achieve their development goals, (economic growth, poverty reduction) a “To expand markets and promote commercial interest + Historicai/colonial ties + Global interdependency, ‘To provide/protect global public goods and reduce il effects of global evils a » Most donors have allocated aid on the basis of ‘a mix of these different factors... | China’s Aid Allocation Different? Perception on China's ald: ‘rogue’ ald? + Put 1 Predominantly affected by s 7 chinese aid undermines the efforts of other donors to Crhance aid effectiveness and to promote democracy and goad governance. | © Whether and to what extent Chinese ald was affected by developmental, governance-related, political or commercial motives? What is the difference from those of traditional donors? «Dreher & Fuchs (2011), "Rogue Aid? The Determinants (of China's Aid Allocation.” i. whom donors give aid? | * Two sages proces of nd atlaction “+ Whether to give ad or not + hetero country receives a (eSity) 1 How much to each eligible county + What erteria to consider in deciding how much aid to whom? * Fecilent need (RN) *recplenteconon/polta station? Fy donor interest (1) + econome, strategic | «aid effectiveness/efficiency? economies of sal (more focused on less counties) 1 universal values? promotion of Democracy, human rights Characteristics of Chinese Aid (1) © 6 Actors 5 hinsayettorian Mae | 1 Chine Cam Bonk established in 1994: concessional ans ant ‘Sipor eres «China Development Bank (established in 1994): commerce | © Estimation of Size In White Paper 2031, State Counc 1-2 mon yan (US49.54 on) 1 Atos gra 299% teres ae ans 2078 a8 + by other sources * GG Tio on n 200 620. ,Yi craracteristcs of Chinese Aid (2) nie acer cede lr 00 + one anae Scots Geeta "Theor aoe ee mee, “natal * ater Tiananmen Square incident + ith: 1996-2006 ‘reform of 1995 reduced market arent principes pass onthe inkage between, tage a ivestert New Era with "new strategie partnership’ n 2006 + Political variables + Taiwan recognition & UN voting = Degree of democracy, institutional quality + Bad governance favored? or principle of non-interference’ + Commercial motives Export & investment relationship + Natural resources += Oil production and other indicators Five Phases of China's Aid Geographical Distribution ‘ae Nee af peg eh a gue See oat pee emp Cha a ‘Te ¢ See saphena me) = "Pao Sento rm aha, oe) al Regression Results by 5 phases (1) + Population, distancery Mace Le | Mvearession Results by 5 phases (2) | ‘+ Recipient Need: GDPpc, disaters Regression Results by 5 phases (3) Democracy (dummy) WBnsatceaun Results by 5 phases (5) + Commercial interest: export, natural resourcesyy — tS en —— ee Me China’s aid really different? (1) ia Is China’s aid * Seren igen Cong eee eee el eS ‘and Arab donors (Saudi ‘quality = z Is China’s aid really different? (3) | Hi conctusion from the analysis With alternative indicators for natural resource 4 China's aid allocation decisions are mainly shaped by ‘endowment politics. aa pene rae tn tr : ae | & No evidence of China's aid allocation inferior from a ‘humanitarian point of view sidan . sare not + China's aid is independent of institutional characteristics. 4 ‘non-interference principle| ul Does Aid Work? | | _ nanan | October 11, 2012 i Does aid work? + Does aid lead to economic growth? ‘¢ The purpose of most aid Is to improve the living Standards of people in developing countries Yer vs No. oy contributing to Key services, suchas educavon, heath, In some creumstances water and sanitation {ith dishing returns ‘id fortis purpose can possibly strengthen economic ost stules on id effectiveness focus on is macroeconamic ‘Arrmanes in the Tong ron, but not Hel o fea to faster | Mascots on ad in a Peermic growth i tne shore or medium rm. tmathedoiogis etiam a: ara i 20 net yd oi + Does aid improve living standards in developing countries? + Aid's working everyday (Barder 2083) Surprisingly much ess research conducted on ts impact on Socal indeatorsid, Social Development and Growth ¢ Interactions and trade-offs ee dpa trata Unintended Consequences of Aid 4 Undermine the development of domestic institutions + Erode the accountability of the government © Entrench interest group Make the export sector uncompetitive, by driving up ‘exchange rate And the Aid Trap.. Boresssausamemees Ald objectives and effectiveness 1 Objectives evolves am human development 2 Effectiveness of aid can be judged by “Trowvenscn he eee aaa 4 Stil there are unintended consequences of ald, which ‘may undermine long-term development. QRAps Aid Effectiveness Analysis Gaius * Basic Econometrics * Basic Econometrics 1) eorelated omitted variable coViK1 X2) #0, cowX2.u) #0 2) error variables Yeotaxy4u, X= + OLS coercient i + OLS conditions )¥ and X are in linear relations 2)X is deterministic Doe ores craved) + Error term conditions 43) simultaneity. DXendu ae naependen | aE. Keweu ie 2ublow nema aecbulon centre 3) distribution of u is homoskedasticity (consistent) o + Soliton Vea 2815 j Conte 0 cont #0 Ex) income = ot edu + u edu =e + 6du B+ uINTRODUCTION SODA Scope ‘Gross ODA, Sectoral ODA, code of ODA, rogram evaluation, Project evaluation Donor inclination | Donat practes (economic, political humanitarian issues) “Demos intrest (donor repent lations) Recipes “regional characteristics Curse of aid by Diankov, Mantalvo, and Reynal-Querol ‘Do corrupt government receive less foreign aid? y Alesina and Wecer “income level AID AND INSTITUTION Sa deme | ‘Interest Variables “insuons, governance, cmrupton, “fungi, fragmentation, oceee ne ltr ntren a nd attne 92500 Interpretation "eof a on stations negative and saneanteverett “fro Trade OT changes ae shock hat can ad osc vers Sse imatay (3) ace res pores ta zea ean set eet oth chonge ‘owl convage coher san “trent no sonar ect+. Doless corupt government receive more aid or debt ler? 3 Mestias el nator + Poverty-trap model ~ ven or isa ay expect gow ne presence of ey ap ery eo unre ma co ery manta Introduction + Aid Effectiveness Disputes ~ Ad, savings investment and Growth = Aid, poverty tap and Growth = Aid, polices and Grown + Prevailing perception of Aid ineffectiveness “= Mecro-macre paradox = Corsption and aid dependency = aid fatigue + Questions: inconsistency in empirical studies why? = Who are ight = What shoul be poly lessons? + Third generation studies anew grout theory and Aid-Growth Dispute 2 Pee! + Measures of Seat ‘conomc plc ad nstutioal environment ~ toy stator Baad we Day GOOO bese tnt ie a ine rancid tena openness 3 sgntcant and pote + studies since BAD Impack: ics addressing diferent aspects ‘specal for ety low near counties ~ Poli vail: opposite ress ath erent eases fr poly ‘courbomento&setatona eficeny = Causality and endogenety problems of pole arabesFons abe a0, 0 wt Hypothesis and Results mein mee ne ccyo gen ose Fag a aed oth ein te po oy Travel te 6 ination ean ples? ttan nd paly dered ana are wih ro Data and Methodology Hypothesis and Results 1 Ress eters ae eaten pe a Fr fa eae ee carat na a penser "soo ot Models + Source: World bank database for foreign aid. (Grant components of concessional loans are added to yield truer estimation) + Data: Panel 56 countries and six 4-year time periods from 1970-73 to 1990-93. user ‘dummy (y ach and Warner BBS nd their interactive term with aid. © os "70% ao. syenajar Pree on scons Sess Dam Oe lien mwammcgromm | | > or +18 and 255: enor tm in (1 and 2) may be cones { Negatve or postive maybe more poutve e commosty boom)@ gut fil come’ Goethe varables logarthm of regional dummy (donors strategic interest) Sub-Saharan Alfica (European) ora sxe! on SID ts omof | Frane zone (France) | Egypt (US) Central American countries (US). policy variables Se wise "ec, oroe i ha FEIN eee ct FeinEce ' pom mnie Quy om me wore ms Ac Wo a ea Variables in test come ane an fon (Aid Equation!" sess.) Yat iy + +o Ha Race les according to =f" Sees ae nt 09 Policy variable endogene ~ity | eo ts icy varia ton with growth, on oe ier coefficient from (3) and Used the value a me Foote oa ole Bo cnet by a) Regression result (1): growth all0 Cotta (2000 ue wd ta 00 Regression result (2a) Regression Result (2b) ! | esd nd Coir 00m 7 mo (coms 08) "aeis a ile f Regression results (3) : Growth Equation growth lower-income countries b= yb, + a8, + apiB + HB, + 8+ eh vacry myst) ‘sev ota neat ey (oa Ret sn vere arcane wie to GDP 0 gy ey ‘conned get pur mrgrty scr porcne coapon tsa Treo tsp E mopman sore nara ci gota A nk pol cn Tse af omy eft of ERE ete Songer te cose) Vise yon pend av cee + Ragen any exo Sra rattle cone but opp oie eps pom an bonInterpretations and questions + the slope ofthis derative nthe poly dimension sgl postive? (ids more efetne i good okey enovomant a in bad environment) cre - + sth devative postive when evaluated at good ev of poo? (standard deviation above the mean) au | nee Or 2) Interpretations Regression, Result Si i‘ Allocation of Aide. + Derivate of growth with respect to aid is positive at a good level of policy (at 24) + Compare single interaction term and outliers income countries. cross-derivative of growth with respect to aid and policy is 0.23 for whole sample, and 0.33 for lower-income countriesInterpretation and simulation + Arms imports relative tft imports lagged one + Helps to explain allocation of aid to midde-inc courtries Bit less relevance to low cares once + One SD above the mean results in about 12 percent more aid for average country (009 30 ef adfee™ + Multilateral aid and the WB, 1SD above the mean results in 24% more and 30% more repectively. 'en scaled appropriately. Fate Lene Roedman (2000) Aid, policies and growth: comment Interpretation + Lower-income country sample + Positive return of aid on government consumption + Bilateral aid has large positive association with government consumption while multilateral aid has none + This is probably why aid is not effective in the typical recipient country.Suri and tr an09 Aid, policies and growth: reply + Focusing only 1990s = one standard deviation on the indices of rule of law and of democracy corresponds to 28% of ‘more overall aid and 50% more finance from the ‘World Bank IDA facility (part of foreign aid) + With 1990s data set, using IV institutions-aid interaction to be more robust than institutions by themselves. + Original argument holds with new data set. + Donors behavior seemed to change from 80s to 90s Following studies Non teu oad ect «cy afc rua) oly ni wah opel tain ase ar a 0) Endogeneity and country effectHance a Tp 2008) Impact of aid on investment DolgardHanaen od To O08 Following studies + Dalgaard, Hansen and Tarp (2004) + Climatic circumstances ) (raction of land in tropical areas) | 's proxy for deep! structural characteristics | + Strong negative correlation between climate conditions and CPIA {thus effect of aid on productivity robust in climate | conditions)SUMMARY OF STUDIES Conclusion 7 Fraawration in empiical investigations Whol right? 2 err 3 oe ‘han importance: hres 1 Thare en rot fect of 1d on growth unless using artilaly feted Sample > [endaney for negative studs to dominate the debate, but they ae in| ieee + Problems "Models sensitive to data and without are speciation = Beverererea compe roe ther regres nthe aps Sgegete selon courte + For future studless : oY Set m itrpreting data and regression resus = More carlin crewing potcy lessons ~ oor «ne pot ne re enh mcm References * i, Pats ana Growth 2000 by Borde and Dar + Comments on Busi and Dai (200) 'y eatery, Uevne and Rodman + id Plies and Grow reply 2008) by Buse and Dolar + Aid and growth regressions 20) ty Hane an Tap + Ad efectiveness disputed 2000) by Hann a Tap (ci aeation and poverty reduction (2001) ‘by calle and Doar