Development aid

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A map of official development assistance distribution in 2005.

Development aid (also development assistance, technical assistance, international aid, overseas aid, official development assistance (ODA),

or foreign aid) is financial aid given by governments and other agencies to support the economic, environmental, social, and
political development of developing countries. It is distinguished from humanitarian aid by focusing on alleviating poverty in the long term, rather than a
short term response.

The term development co-operation, which is used, for example, by the World Health Organization (WHO) is used to express the idea that
a partnership should exist between donor and recipient, rather than the traditional situation in which the relationship was dominated by the wealth and
specialised knowledge of one side. [1] Most development aid comes from the Western industrialised countries but some poorer countries also contribute
aid.

Aid may be bilateral: given from one country directly to another; or it may be multilateral: given by the donor country to an international organisation
such as the World Bank or the United Nations Agencies (UNDP, UNICEF, UNAIDS, etc.) which then distributes it among the developing countries. The
proportion is currently about 70% bilateral 30% multilateral. [2]

About 80-85% of developmental aid comes from government sources as official development assistance (ODA). The remaining 15-20% comes from
private organisations such as "non-governmental organisations" (NGOs), foundations and other development charities (e.g., Oxfam).[3] In addition,
remittances received from migrants working or living in diaspora form a significant amount of international transfer.

Some governments also include military assistance in the notion "foreign aid", although many NGOs tend to disapprove of this.

Official development assistance is a measure of government-contributed aid, compiled by the Development Assistance Committee of the Organisation
for Economic Co-operation and Development (OECD) since 1969. The DAC consists of 34 of the largest aid-donating countries.

Contents

History[edit]
Origins[edit]
The concept of development aid goes back to the colonial era at the turn of the twentieth century, in particular to the British policy of colonial
development that emerged during that period. The traditional government policy had tended to favor laissez-faire style economics, with the free market
for capital and goods dictating the economic role that colonies played in the British Empire.

Lord Moyne, as Secretary of State for the Colonies presided over a Development Committee for the colonies. He is pictured entertaining Jamaican recruits for the RAF.

Changes in attitudes towards the moral purpose of the Empire, and the role that government could play in the promotion of welfare slowly led to a more
proactive policy of economic and developmental assistance towards poor colonies. This process culminated in the passage of the Colonial
Development Act in 1929, which established a Colonial Development Advisory Committee under the authority of the Secretary of State for the
Colonies, then Lord Passfield. Its initial annual budget of £1 million was spent on schemes designed to develop the infrastructure of transport, electrical
power and water supply in colonies and dominions abroad for the furtherance of imperial trade. [4]
By the late 1930s, especially after the British West Indian labour unrest of 1934–1939, it was clear that this initial scheme was far too limited in scope.
A Royal Commission under Lord Moyne was sent to investigate the living conditions in the British West Indies and it published its Report in 1940 which
exposed the horrendous living conditions there. [5][6]

Amidst increasing criticism of Britain's colonial policies from abroad and at home, [7][8] the commission was a performance to showcase Britain’s
“benevolent” attitude towards its colonial subjects. [9] The Commission's recommendations urged health and education initiatives along with increased
sugar subsides to stave off a complete and total economic meltdown. [10] The Colonial Office, eager to prevent instability while the country was at war,
began funneling large sums of cash into the region. [11]

The Colonial Development and Welfare Act was passed in 1940 to organize and allocate a sum of £5 million per year to the British West Indies for the
purpose of long-term development. Some £10 million in loans was cancelled in the same Act. [12] The Colonial Development and Welfare Act of 1945
increased the level of aid to £120m over a twenty-year period. Further Acts followed in 1948, 1959 and 1963, dramatically increasing the scope of
monetary assistance, favourable interest-free loans and development assistance programs.

Postwar expansion[edit]

A poster promoting the Marshall Plan in Europe, the first large scale development program. It was designed to boost European economies shattered by war and prevent the

growth of communist influence.

The beginning of modern development aid is rooted in the context of Post-World War II and the Cold War. Launched as a large-scale aid program by
the United States in 1948, the European Recovery Program, or Marshall Plan, was concerned with strengthening the ties to the West European states
to contain the influence of the USSR. Implemented by the Economic Cooperation Administration (ECA), the Marshall Plan also expanded its
reconstruction finance to strategic parts of the Middle East and Asia. [13] The rationale was well summarized in the 'Point Four Program', in which United
States president Harry Truman stated the anti-communist rationale for U.S. development aid in his inaugural address of 1949, which also announced
the founding of NATO:[4]

"In addition, we will provide military advice and equipment to free nations which will cooperate
with us in the maintenance of peace and security. Fourth, we must embark on a bold new
program for making the benefits of our scientific advances and industrial progress available for
the improvement and growth of underdeveloped areas. More than half the people of the world
are living in conditions approaching misery. Their food is inadequate. They are victims of
disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat
both to them and to more prosperous areas. For the first time in history, humanity possesses the
knowledge and skill to relieve the suffering of these people." [14]

In 1951, the Technical Cooperation Administration (TCA) was established within the Department of
State to run the Point Four program. Development aid was aimed at offering technical solutions to
social problems without altering basic social structures. The United States was often fiercely opposed
 to even moderate changes in social structures, for example the land reform in Guatemala in the early
1950s.

In 1953 at the end of the Korean War, the incoming Eisenhower Administration established the

Foreign Operations Administration (FOA) as an independent government agency outside the
Department of State to consolidate economic and technical assistance. In 1955, foreign aid was
brought back under the administrative control of the Department of State and FOA was renamed the
International Cooperation Administration (ICA).

In 1956, the Senate conducted a study of foreign aid with the help of a number of independent
experts. The result, stated in a 1959 amendment to the Mutual Security Act, declared that
development in low-income regions was a U.S. objective along with and additional to other foreign-
policy interests, attempting thus to clarify development assistance's relationship with the effort to
contain Communism. In 1961, the Congress approved the Foreign Assistance Act of 1961 with
President J.F. Kennedy's support, which retained the 1959 policy of international development as an
independent U.S. objective and set up a new Agency for International Development, USAID.

The volume of international aid to the Third World grew dramatically from the 1960s. This aid came
mainly from the US and Western European countries, but there were also significant contributions
from the Soviet Union in exchange for overseas political influence in the context of the heightened
global tensions of the Cold War.

The Development Assistance Committee was established in 1960 by the Organisation for European

Economic Co-operation to coordinate development aid amongst the rich nations. A 1961 resolution
decreed that:
The Committee will continue to consult on the methods for making national resources available for assisting
countries and areas in the process of economic development and for expanding and improving the flow of
long-term funds and other development assistance to them.
— Development Assistance Committee, Mandate (1961)

Extent of Aid[edit]
Development economics

Economies by region

 Africa

 North America

 South America

 Asia

 Europe

 Oceania

Economic growth theories

 Harrod–Domar model
  neoclassical growth model

 Endogenous growth theory

 Unified growth theory

 balanced growth theory

Fields and subfields

 Economic inequality

 Poverty

 Undernutrition

 land

 labour

 Human Capital

 Education

 property Rights

 Microfinance

 Decentralization

Lists

 Journals

 Publications

 Categories

 Topics

 Economists

 v

 t

 e

Most official development assistance (ODA) comes from the 28 members of the Development

Assistance Committee (DAC), or about $135 billion in 2013. A further $15.9 billion came from
the European Commission and non-DAC countries gave an additional $9.4 billion. Although
development aid rose in 2013 to the highest level ever recorded, a trend of a falling share of aid going
to the neediest sub-Saharan African countries continued. [15]

Top 10 aid recipient countries (2012)[edit]

Main article: List of countries by foreign aid received

Foreign aid received in millions of US dollars [16]

Country 2012

 Afghanistan 6,725.0
 Israel 6,180.0

 Vietnam 4,115.7

 Ethiopia 3,261.3

 Turkey 3,033.1

 Congo, Dem. Rep. 2,859.3

 Tanzania 2,831.8

 Kenya 2,654.0

 Côte d'Ivoire 2,635.6

 Bangladesh 2,152.0

Top 10 aid donor countries (2013)[edit]

Main article: List of governments by development aid

The Organisation for Economic Co-operation and Development (OECD) measures countries
contributing the highest amounts of ODA (in absolute terms). The top 10 DAC countries are as follows
(listed in US dollars). European Union countries together gave $70.73 billion and EU Institutions gave
a further $15.93 billion.[15][17]

  European Union – $86.66 billion

1.  United States – $31.55 billion

2.  United Kingdom – $17.88 billion

3.  Germany – $14.06 billion

4.  Japan – $11.79 billion

5.  France – $11.38 billion

6.  Sweden – $5.83 billion

 7.  Norway – $5.58 billion

8.  Netherlands – $5.44 billion

9.  Canada – $4.91 billion

10.  Australia – $4.85 billion

The OECD also lists countries by the amount of ODA they give as a percentage of their gross
national income. The top 10 DAC countries are as follows. Five countries met the longstanding
UN target for an ODA/GNI ratio of 0.7% in 2013: [15]

1.  Norway – 1.07%

2.  Sweden – 1.02%

3.  Luxembourg – 1.00%

4.  Denmark – 0.85%

5.  United Kingdom – 0.72%

6.  Netherlands – 0.67%

7.  Finland – 0.55%

8.   Switzerland – 0.47%

9.  Belgium – 0.45%

10.  Ireland – 0.45%

European Union countries that are members of the Development Assistance Committee gave

0.42% of GNI (excluding the $15.93 billion given by EU Institutions). [15]

Quality[edit]
Development aid is often provided by means of supporting local development aid projects. In
these projects, it sometimes occurs that no strict code of conduct is in force. In some projects,
the development aid workers do not respect the local code of conduct. For example, the
local dress code as well as social interaction. In developing countries, these matters are
regarded highly important and not respecting it may cause severe offense, and thus significant
problems and delay of the projects.

There is also much debate about evaluating the quality of development aid, rather than simply
the quantity. For instance, tied aid is often criticized as the aid given must be spent in the donor
country or in a group of selected countries. Tied aid can increase development aid project costs
by up to 20 or 30 percent.[18]

There is also criticism because donors may give with one hand, through large amounts of
development aid, yet take away with the other, through strict trade or migration policies.
The Commitment to Development Index measures the overall policies of donors and evaluates
the quality of their development aid, instead of just comparing the quantity ofofficial
development assistance given.

Effectiveness[edit]
Main article: Aid effectiveness
 The 1968 Michenzani apartment blocks
in Zanzibar were part of East German development
assistance and brought a Soviet-style of living to
rural Africa. The apartments were unpopular and
only 1,102 out of the 9,992 planned buildings were
built (see Ng'ambo). Still used today, they stand as a
failed relic of donor-driven (supply-driven)
development aid.
Aid effectiveness is the degree to which development
aid works, and is a subject of significant disagreement.
Dissident economists such as Peter Bauer and Milton
Friedman argued in the 1960s that aid is ineffective: [19]
... an excellent method for transferring money from poor
people in rich countries to rich people in poor countries.

— Peter Bauer
Many econometric studies in recent years have
supported the view that development aid has no effect
on the speed with which countries develop. Negative
side effects of aid can include an
unbalanced appreciation of the recipient's currency
(known as Dutch Disease), increasing corruption, and
adverse political effects such as postponements of
necessary economic and democratic reforms. [20]
It has been argued[by whom?] that much government-to-
government aid was ineffective because it was merely a
way to support strategically important leaders (Alesino
and Dollar, 2000). A good example of this is the former
dictator of Zaire, Mobuto Sese Seko, who lost support
from the West after the Cold War had ended. Mobuto,
at the time of his death, had a sufficient personal
fortune (particularly in Swiss banks) to pay off the entire
external debt of Zaire.[20]
Besides some instances that only the president (and/or
his close entourage) receives the money resulting from
development aid, the money obtained is often badly
spent as well. For example, in Chad, the Chad Export
Project, an oil production project supported by the
World Bank, was set up. The earnings of this project
(6,5 million dollars per year and rising) were used to
obtain arms. The government defended this purchase
by stating that "development was not possible without
safety". However, the Military of Chad is notorious for
severe misconduct against the population (abuse, rape,
claiming of supplies and cars) and did not even defend
the population in distress (e.g. in the Darfur conflict). In
2008, the World Bank retreated from the project that
thus increased environmental pollution and human
suffering.[21]
Another criticism has been that Western countries often
project their own needs and solutions onto other
societies and cultures. In response, western help in
some cases has become more 'endogenous', which
means that needs as well as solutions are being d evised in
accordance with local cultures.[22] For example, sometimes projects are set up which wish to
make several ethnic groups cooperate. While this is a noble goal, most of these projects fail
because of this intent.[21]

It has also been argued that help based on direct

donation creates dependency and corruption, and has
an adverse effect on local production. As a result, a
shift has taken place towards aid based on activation of
local assets and stimulation measures such
as microcredit.
Aid has also been ineffective in young recipient
countries in which ethnic tensions are strong:
sometimes ethnic conflicts have prevented efficient
delivery of aid.
In some cases, western surpluses that resulted from
faulty agriculture- or other policies have been dumped
in poor countries, thus wiping out local production and
increasing dependency.
In several instances, loans that were considered
irretrievable (for instance because funds had been
embezzled by a dictator who has already died or
disappeared), have been written off by donor countries,
who subsequently booked this as development aid.
In many cases, Western governments placed orders
with Western companies as a form of subsidizing them,
and later shipped these goods to poor countries who
often had no use for them. These projects are
sometimes called 'white elephants'.
According to Martijn Nitzsche, another problem is the
way on how development projects are sometimes
constructed and how they are maintained by the local
population. Often, projects are made with technology
that is hard to understand and too difficult to repair, resulting in
unavoidable failure over time. Also, in some cases the local population is not very interested in
seeing the project to succeed and may revert to disassembling it to retain valuable source
materials. Finally, villagers do not always maintain a project as they believe the original
development workers or others in the surroundings will repair it when it fails (which is not always
so).[23]

A common criticism in recent years is that rich countries have put so many conditions on aid
that it has reduced aid effectiveness. In the example of tied aid, donor countries often require
the recipient to purchase goods and services from the donor, even if these are cheaper
elsewhere. Other conditions include opening up the country to foreign investment, even if it
might not be ready to do so.[24]

In Congo, an abandoned ferry as a relic of a development project is rusting next to the boats people use

today.

All of these problems have made that a very large part of the spend money on development aid
is simply wasted uselessly. According to Gerbert van der Aa, for the Netherlands, only 33% of
the development aid is successful, another 33% fails and of the remaining 33% the effect is
unclear. This means that for example for the Netherlands, 1.33 to 2.66 billion is lost as it spends
4 billion in total of development aid (or 0,8% of the gross national product). [23]

For the Italian development aid for instance, we find that one of their successful projects (the
Keita project) was constructed at the cost of 2/3 of 1 F-22 fighter jet (100 million $), and was
able to reforest 1,876 square miles (4,900 km2) of broken, barren earth, hereby increasing the
socio-economic wellbeing of the area.[25] However -like the Dutch development aid- again we find
that, the Italian development aid too is still not performing up to standards. [26] This makes clear
that there are great differences between the success of the projects and that budgetary follow-
up may not be so strictly checked by independent third parties.

An excerpt from Thomas Dichter's recently published book Despite Good Intentions: Why

Development Assistance to the Third World Has Failed reads: "This industry has become one in
which the benefits of what is spent are increasingly in inverse proportion to the amount spent - a
case of more gets you less. As donors are attracted on the basis of appeals emphasizing
"product", results, and accountability…the tendency to engage in project-based, direct-action
development becomes inevitable. Because funding for development is increasingly finite, this
situation is very much a zero-sum game. What gets lost in the shuffle is the far more challenging
long-term process of development."

Effectiveness of development aid can be argued to be uncoordinated and unsustainable.

Development aid tends to be put towards specific diseases with high death rates and simple
treatments, rather than funding health basics and infrastructure. Though a lot of NGO's and
funding have come forth, little sustainable outcomes have been made. This is due to the fact
that the money doesn't go towards developing a sustainable medical basis. Money is given to
specific diseases to show short-term results, reflecting the donor's best interests rather than the
citizens' necessities. It is evident that many development aid projects are not helping with basic
and sustainable health care due to the generally high numbers of deaths due to preventable
diseases. Development aid could do more justice if used to generate general public health with
infrastructure and trained personnel rather than pin-pointing specific diseases and reaching for
quick fixes.[27]

Research has shown that developed nations are more likely to give aid to nations who have the
worst economic situations and policies (Burnside, C., Dollar, D., 2000). They give money to
these nations so that they can become developed and begin to turn these policies around. It has
also been found that aid relates to the population of a nation as well, and that the smaller a
nation is, the more likely it is to receive funds from donor agencies. The harsh reality of this is
that it is very unlikely that a developing nation with a lack of resources, policies, and good
governance will be able to utilize incoming aid money in order to get on their feet and begin to
turn the damaged economy around. It is more likely that a nation with good economic policies
and good governance will be able to utilize aid money to help the country establish itself with an
existing foundation and be able to rise from there with the help of the international community.
But research shows that it is the low-income nations that will receive aid more so, and the better
off a nation is, the less aid money it will be granted

MIT based study[edit]

Development aid, German stamp (1981).

The Massachusetts Institute of Technology's Abhijit Banerjee and Ruimin He have undertaken a

rigorous study of the relatively few independent evaluations of aid program successes and
failures.[28] They suggest the following interventions are usually highly effective forms of aid in
normal circumstances:

 subsidies given directly to families to be spent on children's education and health

 education vouchers for school uniforms and textbooks
 teaching selected illiterate adults to read and write
 deworming drugs and vitamin/nutritional supplements
 vaccination and HIV/AIDS prevention programs
 indoor sprays against malaria, anti-mosquito bed netting
 suitable fertilizers
 clean water supplies

UK Parliamentary study[edit]
An inquiry into aid effectiveness by the UK All Party Parliamentary Group (APPG) for Debt, Aid
and Trade featured evidence from Rosalind Eyben, a Fellow at the Institute of Development
Studies. Her evidence to the inquiry stated that effective aid requires as much investing in
relationships as in managing money. It suggests Development organisations need to change
the way they work to manage better the multiple partnerships that the Accra Agenda for Action
recognises is at the core of the aid business. In relation to this specific inquiry, Dr Eyben
outlined the following points:[29]

 Achieving impact requires investing in relationships, development organisations need to

support their staff to do this. At the moment, the opposite is happening.
 In multiple sets of relationships there will be different ideas about what is success and
how to achieve it and this should be reflected in methodologies for defining and assessing
the impact of aid.
 Helpful procedural harmonisation should not mean assuming there is only a single
diagnosis and solution to any complex problem.
 In addition to measuring results, donors need to assess the quality of relations at
project/programme, country and international levels against indicators agreed with
partners.
 Decisions on aid need to be made on a case by case basis on the advice of well-informed
country offices.
 Accountable states depend on empowered citizens
 Development organisations also need to be more accountable to UK citizens through
encouraging conversations as to the real challenges and limitations of aid. (Point made in
relation to UK as evidence for UK parliamentary inquiry)

The views above are of Eyben. There were many other submissions to the All Party
Parliamentary Group for Debt, Aid and Trade's inquiry into Aid Effectiveness. The final report
gathered a vast amount of information from a wide range of sources to ensure a balanced
perspective on the issues of aid effectiveness. The All Party Parliamentary Group for Debt, Aid
and Trade's inquiry into Aid Effectiveness can be found online and the submissions of other
contributors are available upon request.

Corruption[edit]
Main article: Political corruption

While development aid is an important source of investment for poor and often insecure
societies, aid's complexity and the ever expanding budgets leave it vulnerable to corruption, yet
discussing it remains difficult as for many it is a taboo subject. [30] Corruption is very hard to
quantify as it is often hard to differentiate it from other problems, such as wastage,
mismanagement and inefficiency, to illustrate the point, over $8.75 billion was lost to waste,
fraud, abuse and mismanagement in the Hurricane Katrina relief effort.[30]

Often a lack of understanding of the process by those meant to be receiving aid leads to
cynicism and belief that greed and corruption are the key failures. Non-governmental
organizations have in recent years made great efforts to increase participation, accountability
and transparency, humanitarian assistance remains a poorly understood process to those
meant to be receiving it—much greater investment needs to be made into researching and
investing in relevant and effective accountability systems. [30]
 However, there is little clear consensus on the trade-offs between speed and control, especially
in emergency situations when the humanitarian imperative of saving lives and alleviating
suffering may conflict with the time and resources required to minimise corruption risks.
[30]
 Researchers at the Overseas Development Institute have highlighted the need to tackle
corruption with, but not limited to, the following methods: [30]

1. Resist the pressure to spend aid rapidly.

2. Continue to invest in audit capacity, beyond simple paper trails;
3. Establish and verify the effectiveness of complaints mechanisms, paying close
attention to local power structures, security and cultural factors hindering
complaints;
4. Clearly explain the processes during the targeting and registration stages,
highlighting points such as the fact that people should not make payments to be
included, photocopy and read aloud any lists prepared by leaders or committees.

Private aid[edit]
Development charities make up a vast web of non-governmental organizations, religious
ministries, foundations, business donations and college scholarships devoted to development
aid. Estimates vary, but private aid is at least as large as ODA within the United States, at $16
billion in 2003. World figures for private aid are not well tracked, so cross-country comparisons
are not easily possible, though it does seem that per person, some other countries may give
more, or have similar incentives that the United States has for its citizens to encourage giving. [31]

Remittances[edit]
It is doubtful whether remittances, money sent home by foreign workers, ought to be considered
a form of development aid. However, they appear to constitute a large proportion of the flows of
money between developed and developing countries, although the exact amounts are uncertain
because remittances are poorly tracked. World Bank estimates for remittance flows to
developing countries in 2004 totalled $122 billion; however, this number is expected to change
upwards in the next few years as the formulas used to calculate remittance flows are modified.
The exact nature and effects of remittance money remain contested, [32] however in at least 36 of
the 153 countries tracked remittance sums were second only to FDI and outnumbered both
public and private aid donations.[33]

The International Monetary Fund has reported that private remittances may have a negative
impact on economic growth, as they are often used for private consumption of individuals and
families, not for economic development of the region or country. [34]

National development aid programs[edit]

 Bilateral aid is assistance given by a government
directly to the government of another country. It is when
the capital flows from a developed nation to a developing
nation.  It is often directed according to strategic political
considerations as well as humanitarian ones.
 Multilateral aid is assistance provided by governments
to international organizations like the World Bank,
United Nations and International Monetary Fund that are
then used to reduce poverty in developing nations.
 Tied aid is foreign aid that must be spent in the country
providing the aid (the donor country) or in a group of
selected countries. A developed country will provide a
bilateral loan or grant to a developing country, but
mandate that the money be spent on goods or services
produced in the selected country.