an Evolving World


Oct 28, 2013 (4 years and 7 months ago)


U.S. Development Assistance in
an Evolving World

Jeffrey Alwang


Department of Agricultural and Applied Economics

Virginia Tech


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


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?


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.”


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


Support for agriculture and, particularly
agricultural research, had clear payoffs during the

Success in agriculture led to focus on “second
generation” problems

poverty reduction and rural

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
(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
universities and U.S. development assistance

Decline in agricultural specialists in USAID

Movement of technical assistance services away from land
universities and toward consulting firms

Movement toward “program support” rather than “project

E.g. SWaP currently used by major donors

Macro trends

Concentration of U.S. foreign aid in a few

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
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

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,

There is no strong evidence that ODA has led to
large intercountry differences in growth rates

Sector studies have shown better results:


Human resource development


How can effectiveness of aid be

Improve macroeconomic and sectoral policies in recipient

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

term commitments, particularly support for
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