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. 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.
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). 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.
- 1 History
- 2 Extent of Aid
- 3 Quality
- 4 Effectiveness
- 5 Corruption
- 6 Private aid
- 7 Remittances
- 8 National development aid programs
- 9 See also
- 10 References
- 11 Further reading
- 12 External links
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.
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. The first challenge first by Britain was the economic crisis that occurred after World War I. Prior to the passage of the 1929 Colonial Development Act, the doctrine that governed Britain (and other European colonizers) with their territories was that of financial self-sufficiency. What this simply meant was that the colonies were responsible for themselves.
Britain was not going to use the money that belongs to the metropole to pay for things in the colonies. The colonies did not only have to pay for infrastructural development but they also were responsible for the salaries of British officials that worked in the colonies. The colonies generated the revenues to pay for these through different forms of taxations. The standard taxation was the import and export taxes. Goods going out of the colonies were taxed and those coming in were also taxed. These generate significant revenues. Apart from these taxes, the colonizers introduced two other forms of taxes: hut tax and labor tax. The hut tax is akin to a property tax today. Every grown up adult male had their own hut. Each of these had to pay a tax. Labor tax was the work that the people had to do without any remunerations or with meager stipends. As the economic crisis widened and had significant impact on the colonies, revenues generated from taxes continued to decline, having a significant impact on the colonies. While this was going on, Britain experienced major unemployment rates. Parliament began to discuss ways in which they could deal with Britain's unemployment rates and at the same time respond to some of the urgent needs of the 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. The 1929 Act, though meager in the resources it made available for development, was a significant Act because it opened the door for Britain to make future investments in the colonies. It was a major shift in colonial development. The doctrine of financial self-sufficiency was abandoned and Britain could now use metropolitan funds to develop the colonies.
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.
Amidst increasing criticism of Britain's colonial policies from abroad and at home, the commission was a performance to showcase Britain’s “benevolent” attitude towards its colonial subjects. The Commission's recommendations urged health and education initiatives along with increased sugar subsidies to stave off a complete and total economic meltdown. The Colonial Office, eager to prevent instability while the country was at war, began funneling large sums of cash into the region.
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. 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.
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. 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:
- "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."
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
|Economies by region|
|Economic growth theories|
|Fields and subfields|
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.
Top recipient countries
Top donor countries
The Organisation for Economic Co-operation and Development (OECD) measures countries contributing the highest amounts of ODA (in absolute terms). As of 2013, 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.
- European Union – $86.66 billion
- United States – $31.55 billion
- United Kingdom – $17.88 billion
- Germany – $14.06 billion
- Japan – $11.79 billion
- France – $11.38 billion
- Sweden – $5.83 billion
- Norway – $5.58 billion
- Netherlands – $5.44 billion
- Canada – $4.91 billion
- 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:
- Norway – 1.07%
- Sweden – 1.02%
- Luxembourg – 1.00%
- Denmark – 0.85%
- United Kingdom – 0.72%
- Netherlands – 0.67%
- Finland – 0.55%
- Switzerland – 0.47%
- Belgium – 0.45%
- Ireland – 0.45%
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.
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, or by getting a foothold for foreign corporations. 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 of official development assistance given.
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:
... 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.
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.
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.
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 devised in accordance with local cultures. 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.
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).
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.
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).
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. However -like the Dutch development aid- again we find that, the Italian development aid too is still not performing up to standards. 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.
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
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. 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
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:
- 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.
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. 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.
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.
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. Researchers at the Overseas Development Institute have highlighted the need to tackle corruption with, but not limited to, the following methods:
- Resist the pressure to spend aid rapidly.
- Continue to invest in audit capacity, beyond simple paper trails;
- Establish and verify the effectiveness of complaints mechanisms, paying close attention to local power structures, security and cultural factors hindering complaints;
- 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.
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.
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, 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.
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.
National development aid programs
- Australian Agency for International Development
- China foreign aid
- Department for International Development (United Kingdom)
- International economic cooperation policy of Japan
- Saudi foreign assistance
- Swedish International Development Cooperation Agency
- United States foreign aid
Effectiveness and anti-corruption measures:
Tools and Stories:
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- Aid Effectiveness and Governance: The Good, the Bad and the Ugly
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- Are Immigrant Remittance Flows a Source of Capital for Development? - WP/03/189
- Approaches to a Regulatory Framework for Formal and Informal Remittance Systems: Experiences and Lessons, February 17, 2005
- Are Immigrant Remittance Flows a Source of Capital for Development
- Georgeou, Nichole, Neoliberalism, Development, and Aid Volunteering, New York: Routledge, 2012. ISBN 9780415809153.
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- Perspectives on European Development Co-operation by O. Stokke
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- Rethinking Poverty: Comparative perspectives from below. by W. Pansters, G. Dijkstra, E. Snel ISBN 90-232-3598-3
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- Open Aid Register
- IATI search engine (Beta). Find any development aid activity around the world. Using the IATI registry as access point.
- Aid and Development at DMOZ
- AidData: Tracking Development Finance
- Open Aid Data Provides detailed developing aid finance data from around the world.
- Center for International Development at Harvard University
- The Centre for Aid and Public Expenditure, Overseas Development Institute
- Millions Saved A compilation of case studies of successful foreign assistance by the Center for Global Development.
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