Download Jeffrey R. Alwang

U.S. Development Assistance in
an Evolving World
Jeffrey Alwang
Professor
Department of Agricultural and Applied Economics
Virginia Tech
Objectives
• Examine rationale behind providing foreign
development assistance
• Examine US development assistance
program: history and motivations
• Discuss some ways that development
assistance can be improved
Types of foreign aid
• Economic development assistance plus
military assistance
• Bilateral & multilateral
• Grants & loans
• Programmed & emergency
• Components: financial aid, technical
assistance, food aid
Rationale for Foreign Aid
• Humanitarian (moral or ethical)
• Compensation for past injustices
• Uneven distribution of global resources
• Moral obligation to help the poor improve their
standards of living
• Political (strategic self interest)
• Economic self interest
• Develop markets
• Dispose of surplus
Rationale continued
• Is foreign development assistance in the best
interest of both the donor and recipient? Some
issues:
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Dependency
Substitute for domestic savings
Supports public sector (can be a source of inefficiency)
Administratively costly
• Why is aid needed instead of relying on private
commercial capital flows?
Overview
• Foreign aid is a relatively new phenomenon
• Prior to WWII, most foreign aid was bilateral, and
formal programs for U.S. aid were limited and ad
hoc in nature
• Relief and recovery efforts in W. Europe (Marshall
Plan) and E. Asia began a flow of development
assistance from the U.S.
• Following WWII, Point Four in Harry S Truman’s
1949 inaugural address called for:
“a bold new program for making the benefits of scientific
advances and industrial progress available for the growth of
underdeveloped areas.”
Overview
• Point Four marked a shift in assistance emphasis
from reconstructing Europe toward needs of
developing countries
• Through 1950s and early 1960s, development
assistance was almost entirely bilateral and largely
from the U.S.
• U.S. assistance was focused on infrastructure,
institution building and professional staff
education. Agriculture and food aid were clear
focus
Overview
• Support for agriculture and, particularly
agricultural research, had clear payoffs during the
1960s
• Success in agriculture led to focus on “secondgeneration” problems– poverty reduction and rural
development– and movement away from
infrastructure and institution building
• U.S. agricultural aid focused on technology
adoption through subsidized credit, especially in
Latin America
Overview: history
• 1980s & 1990s were era of policy reforms
• Open economies had better growth performance
• More liberal economies led to more efficient resource allocations
• Many of the biases due to inappropriate macro economic policies
were against agriculture
• In many countries, structural adjustment policies did not
benefit social spending and agricultural research and
extension expenditures were dramatically cut
• In Africa, aid shifted to second-generation and then to
policy reforms without addressing the first-generation
(productivity enhancement) problems
Macro trends
• Trend toward multilateral aid since 1960
• Decline in assistance for agriculture with increases in
human resources and environment
• Loss of linkage between technical expertise at land-grant
universities and U.S. development assistance
• Decline in agricultural specialists in USAID
• Movement of technical assistance services away from land-grant
universities and toward consulting firms
• Movement toward “program support” rather than “project
support”
• E.g. SWaP currently used by major donors
Macro trends
• Concentration of U.S. foreign aid in a few
countries
• U.S., in 2004, dramatically increased its foreign
aid to $19 billion, a 14.1% increase in real terms
from 2003
• ODA to developing countries increased to $ 78.6
billion in 2004, its highest level ever
• But, the donor country average is about .25% of GDP, far
below the .7% target agreed to at the UN
• US ODA is about .16% of GDP
• US is still the world’s largest donor, accounting for about 24%
of total ODA
Impacts of aid
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Capital accumulation
Ease budget constraints
Provide foreign exchange
Transfer technical expertise
Effectiveness of foreign aid
• Need to distinguish between types of aid: bilateral
and multilateral
• Foreign aid has been a relatively small share of
less-developed country GNP
• All aid is not focused on development; it is often
delivered for political purposes, disasters, etc.
• Even for aid destined for development, there are
multiple purposes:
• Infrastructure, human resource development, agricultural
research
• Empowerment-oriented investments in groups
Effectiveness of foreign aid
• Effectiveness of aid depends on existing policies:
• Can help perpetuate ineffective policies
• Generally, countries with good policy regimes have benefited,
but…
• There is no strong evidence that ODA has led to
large intercountry differences in growth rates
• Sector studies have shown better results:
• Infrastructure
• Human resource development
• Agriculture
How can effectiveness of aid be
improved?
• Improve macroeconomic and sectoral policies in recipient
countries
• Improved dialogue between donors and recipients
• More attention to development goals rather than narrow
political interests:
• Food aid with a purpose (such as generating rural employment)
• Technical assistance and long-term training
• Longer-term commitments, particularly support for
institution-building and long-term training
• Improved coordination and management among
multilateral agencies
• Learn from mistakes, but don’t throw out the baby with the
bath water