Foreign Aid Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

This example Foreign Aid Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.

Foreign aid (or development assistance) consists of voluntary transfers of resources from a donor to a (developing) recipient country. More specifically, official development assistance (ODA) is restricted to transfers of government resources via bilateral or multilateral channels.

Definitions And Overview

Bilateral ODA involves only the donor’s and the recipient’s governments, while multilateral channels consist of international organizations such as the World Bank, the International Monetary Fund, and the United Nations Development Programme. ODA therefore excludes private funds raised by international nongovernmental organizations. In 2008, bilateral and multilateral ODA from members of the Organization for Economic Cooperation and Development (OECD) totaled approximately US$120 billion; the biggest bilateral donor countries were the United States, Germany, the United Kingdom, France, and Japan. Although OECD donors agreed in the late 1970s on a spending goal of 0.7 percent of their countries’ combined gross national income, ODA in 2008 represented only roughly 0.3 percent of OECD members’ gross national income.

Generally, aid can be delivered in different forms. First, one can distinguish between humanitarian aid and assistance delivered for more structural objectives. Humanitarian aid is normally short term, is often in material form, and exists as a response to cases of humanitarian crisis caused by natural catastrophes or political violence. In contrast, structural aid has rather long-term goals and—at least rhetorically— aims at reducing economic and political barriers for development. Primarily, long-term aid is an attempt at promoting economic growth, poverty reduction, and democratization. Nevertheless, the list of such structural goals has continuously expanded during the past five decades, as mirrored in the United Nations Millennium Development Goals. Currently, international development challenges—such as climate change, new security threats, and economic turmoil—have added a global perspective to the foreign aid agenda, which traditionally focused mainly on national contexts. According to some observers, this expansion with little prioritization is threatening to overburden the capabilities of development assistance and is reducing the accountability of aid organizations.

A second distinction can be drawn between financial and technical instruments of providing development assistance. Financial instruments typically consist of subsidized credits, grants, and debt relief, which are often conditioned on policy or institutional reforms in the recipient country. Technical cooperation in the form of capacity building mostly contains training or assistance when reforms are implemented. As development assistance increasingly is targeted to tackle institutional barriers for development, financial and technical cooperation have become more political. A political dialogue at the national level often accompanies aid instruments between donor and recipient governments because profound, reaching reforms in fields such as education, health, and public finance generally have far-reaching implications for the political settlement of the recipient society.

The Aid Effectiveness Debate

At least until the 1990s, the debate about the effectiveness of development aid was mainly centered on the impact of aid on economic development, which, in turn, was assumed to further increase overall human development. Studies evaluating the effectiveness of development aid across countries, however, uncovered a paradoxical finding: although development aid has mostly been evaluated in a positive manner at the project level or in specific sectors, such as education, no robust evidence of causality between development aid and economic growth or poverty reduction at a macro-economic level could be identified—at least not for the period spanning from the 1960s to the 1990s. This micro-macro paradox can be attributed to a number of negative externalities, which result from the increasing aid dependency of poor countries.

First, substantial aid inflows can negatively affect the recipient country’s international competitiveness because, as the currency appreciates with growing aid inflows, the competitiveness of the tradable sector declines (a phenomenon known as Dutch disease). Second, poor countries especially face constraints in their absorptive capacity because they simply do not have the human and technical capacity to manage large resource inflows and the administration connected to this in an effective manner. Third, high aid inflows can distort incentives for policy makers to engage in development-friendly policies. High aid inflows channeled through recipient countries’ governments can be prone to misuse and may even spur corruption inside the recipient country. Moreover, aid flows are subject to fungibility. Fungibility implies that governments tend to alter their spending decisions and reallocate their budgets in such a way that development aid can at least partly substitute national spending in sectors relevant for development. The resulting fiscal maneuvering space of recipient governments can be used for sustaining patronage systems and protecting autocratic structures. The challenge of fungibility and the potential misuse of aid for serving powerful interest groups are reduced in countries where political transparency and democratic participation are higher. Considering this, empirical evidence suggests that the effectiveness of development aid is dependent on the policy environment of the recipient and is increased by good governance.

Political Economy Perspectives On Foreign Aid

To be most effective, most forms of aid should over proportionally flow not only to the relatively poor but also to relatively well-governed countries. At least until the mid-1990s, the allocation of aid had not always responded to these criteria. Moreover, an analysis of specific donor countries’ allocation patterns revealed great heterogeneity. While especially Scandinavian donors responded to development-friendly allocation criteria, larger countries often disbursed aid according to their own geostrategic, economic, or diplomatic interests. In addition, aid disbursements and conditionality of multilateral organizations such as the World Bank or the International Monetary Fund were also influenced (not determined) by political interests of major donor countries, namely, the United States. Consequently, critical perspectives on development assistance have repeatedly pointed out that self-interest-driven aid-allocation patterns of major donors have contributed to limited aid effectiveness in the past.

Political economy perspectives have also revealed how the growing bilateral and multilateral aid bureaucracies developed special interests of their own. In the past, aid projects often were badly coordinated, and donor organizations competed for scarce resources, gave little importance to independent evaluation, and established different standards, thereby impeding knowledge diffusion and transparency. Moreover, the overall donor fragmentation and project proliferation imposed high transaction costs on recipients’ administrative structures. Thus, it became evident that for aid to be effective, what mattered were both the institutional quality of recipient countries and the institutional setup of donor countries responsible for organizing development promotion.

In response to criticism of traditional aid delivery, the international aid system has embarked on a transformation process. In this context, the Paris Declaration of 2005 set out a series of principles aimed at (1) improving harmonization of donor activities and reducing the proliferation of small-scale projects, (2) strengthening the recipient countries’ voice in defining aid strategies, and (3) strengthening independent evaluation and learning processes. More recent studies have also pointed out that aid allocation in recent years has become more in line with development-friendly criteria. To what extent these reforms have constrained the impact of special interests and substantially increased aid effectiveness remains a question. In sum, from a political economy perspective, foreign aid to a certain extent mirrors the challenges of domestic social policy. While there is consensus that a society needs at least some transfers from the rich to the poor, one crucial challenge for making social policies effective consists in constraining the impact of powerful interest groups that emerge in the course of the redistribution process.

Bibliography:

Alesina, Alberto, and Beatrice Weder. “Do Corrupt Governments Receive Less Aid?” American Economic Review 92, no. 4 (2002): 1126–1137.
Collier, Paul, and David Dollar. “Aid Allocation and Poverty Reduction.” European Economic Review 46, no. 8 (September 2002): 1475–1500.
Easterly,William. “The Cartel of Good Intentions:The Problem of Bureaucracy in Foreign Aid.” Journal of Policy Reform 5, no. 4 (2003): 1–28.
Reinventing Foreign Aid. Cambridge, Mass.: MIT Press, 2008. Faust, Jörg. “Are More Democratic Donor Countries More Development Oriented? Domestic Institutions and External Development Promotion in OECD Countries.” World Development 36, no. 3 (2008): 383–398.
Knack, Stephen. “Aid Dependence and the Quality of Governance: Crosscountry Empirical Tests.” Southern Economic Journal 68 (2001): 210–329.
Knack, Stephen, and Aminur Rahman. “Donor Fragmentation and Bureaucratic Quality in Aid Recipients.” Journal of Development Economics 83, no. 1 (May 2007): 176–197.
Remmer, Karen. “Does Foreign Aid Promote the Expansion of Government?” American Journal of Political Science 48, no. 1 (January 2004): 77–92.
Tarp, Finn, and Peter Hjertholm, eds. Foreign Aid and Development: Lessons Learnt and Directions for the Future. London: Routledge, 2000.
Thacker, Strom. “The High Politics of IMF Lending.” World Politics 52, no. 1 (October 1999): 38–75.