an Evolving World

oppositemincedManagement

Oct 28, 2013 (3 years and 11 months ago)

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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:


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 “second
-
generation” 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


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