Aid has always been controversial. On the one hand there is, to most, a clear moral obligation to help poorer countries and people. On the other hand, there is the concern that financial transfers either do not work very well or even undermine broader development efforts. Peter Bauerâs critique of aid (notably, 1972) was seminal and there have been many since, not least from Easterly (2006) and Moyo (2009), and most recently Deaton (2013).
The issue of aidâs effectiveness at fostering development is as important today as it has ever been, but the context is somewhat different from previous eras for three reasons:
- (a) There has been progress in terms of wealth generation in poorer countries, with even some of the worldâs poorest countries posting impressive growth rates in the past decade in particular. Global estimates unanimously suggest, albeit with a wide range of estimates, significant reductions in the numbers of the worldâs extremely poor people are likely to continue over the next 10â20 years. This has prompted questions as to whether aid is still as important as it was, not least given the growing number of countries crossing the somewhat arbitrary threshold to middle-income status, which is seen as reason to start winding down aid by some donors.
- (b) At the same time, a range of new or re-emerging aid-givers have entered the fray, including governments of emerging economies or major private organisations. The varied motivations and ways of working among this increased array of actors have thrown open aid effectiveness debates previously thought closed, such as the acceptability of tied aid or aid not focused primarily on poverty reduction, and the importance or otherwise of using country systems.
- (c) The final critical addition to todayâs aid equation is the expanding set of challenges facing the world. The post-2015 Sustainable Development Goal discussions have emerged with an agenda in which ending absolute poverty remains central but other concerns are also recognised, namely the planetâs environmental limits and the need to invest in greener growth and more equitable development. It is likely that this longer list of objectives will have consequences for the future of international aid.
Add to these changes the economic problems faced by many of the traditional donor countries (which come together in the Organisation for Economic Cooperation and Development (OECDâs) Development Assistance Committee (DAC), which has led to significant political pressure to reduce foreign assistance, and the question of aid effectiveness is facing new and to some extent unforeseen questions.
The theories and practices of development cooperation have to change significantly if they are to respond to the challenges and opportunities of a new era. Establishing and analysing the effectiveness of aid interventions is important both for its own sake (so that aid can improve its impacts) as well as to make the case for aid budgets to be sustained.
Questions for the Present Aid Effectiveness Narrative
Prior to the early 1970s, there was very little discussion of aid effectivenessânot because it was not considered important but because the assumption was that aid (as an additional resource) necessarily made a positive contribution. Since then, the discussion has been more fervent, especially since the end of the 1990s. A growing emphasis has been placed on the effectiveness of aid interventions in response to, on the one hand, increasing criticisms from a variety of perspectives that were damaging the broad consensus behind development aid and, on the other, a range of important pieces of evidence that began to shape a consolidated response to the problem.
Convened by the OECD-DAC, and backed by low-income countries and major pressure groups, conferences in Rome (2003) and Paris (2005) gave rise to the Paris Declaration on Aid Effectiveness, with its five now well-known principles and 12 indicators of progress. The âParis agendaâ found broad support among the worldâs poorest countries as it addressed recognised problems in the aid industry with commitments from both donors and recipients hoping to gradually improve the impacts of aid interventions. It has become the conventional summary of what effective aid should look like. A 2008 meeting in Accra, Ghana further refined this new aid effectiveness agenda, reaffirming the need for action and emphasising the importance of partnerships with non-state actors, in particular the role of civil society.
The two most recent meetings in this series, in Busan, South Korea (2011), and Mexico City (2014), oversaw a significant transformation both in the ambition of the âaid effectiveness agendaâ and its primary channels of influence. In response to criticism that focusing on âofficial development assistanceâ from OECD member countries was too narrow in todayâs world, the process has sought to look at a range of other aspects important for successful pro-development interventions, including SouthâSouth cooperation, private sector involvement, and domestic resources such as tax.
However, despite some advances, it is broadly agreed that progress has been limited. The real-life incentives that led the aid industry into some of its cul-de-sacs in the first place were perhaps not properly understoodâthe political economy of aid appears absent in a predominantly technical analysis. Over time the principles have also come under scrutiny, especially as applied to countries outside the core client base of low-income countries. With the rise of the emerging economies, some of which are now donors themselves, major shifts are underway in global governance, and economic theory and deficiencies in the Paris agenda have become ever clearer with regard to two areas in particular: evidence and universal applicability.
Evidence
Some aspects of the Paris agenda, although based on decades of donor and recipient experience in aid delivery, are not evidently supported by the weight of published academic research, or research does not exist to make a reasonable judgement. For instance, the pressure to put more aid âon systemâ, that is to use recipient-country processes such as budgets and spending mechanisms, a guiding force of aid effectiveness discussions for the past decade, may be less appropriate where aid is a small proportion of the economy, or where objectives are not primarily about system strengthening or where government systems are particularly weak. In fact, there is little evidence that one modality is generally more appropriate than anotherâit depends on objective and context.
Universal Applicability
Some aspects of the Paris agenda may be inappropriate for all development cooperation providers/recipients. Tied aid, for instance, is not necessarily an effectiveness issue; it could be viewed as a value-for-money issue. Therefore untying aid is not so relevant for less wealthy or new donor countries, where labour and goods are available more cheaply (such as in India, China, and Brazil). Tying aid, in fact, may be important in promoting increased participation in SouthâSouth cooperation, including persuading sceptical electorates of its importance (indeed, this may also be a growing trend in some of the OECD countries, where voters want to know how they are also benefiting).
Attempts to update the Paris agenda to accommodate new development horizons remain ongoing. There are questions over the extent to which the non-DAC bilateral donors have engaged meaningfully in the agenda given their focus on alternative processes under the auspices of the UN. Meanwhile, the clarity of the Paris principles has been somewhat confused by the movement from aid effectiveness to development effectiveness, a nebulous concept with a variety of meanings. A lack of political weight combined with a lack of technical clarity has left us with an aid/development effectiveness narrative that is at once confused (what is it and to whom does it apply) and deprioritised (few donors now feel pressure to meet specific targets). The great merit of the Paris agenda, for all its faults, was that recipient countries could use it to pressure donors to align better with the principlesâit is questionable whether the Busan/Mexico City agenda is now playing that function (see Glennie et al. 2013, for more on this).
A New Narrative on Aid Effectiveness
This crisis in clarity and confidence comes at a time when there has never been a greater need for a convincing, evidence-based, coherent, and well-communicated narrative on when aid can work. Policymakers, politicians, practitioners, and members of the public all need to be reconvinced of the value of aid. Pressures on the public budgets of OECD countries are likely to last for the foreseeable future. If such a narrative does not emerge, we run the risk of gradually declining support for public spending, not only on traditional aid but also on various other global collective action problems that are becoming more pressing.
Part of the problem is the polarised and non-nuanced public policy debate between the âaid worksâ versus âaid is a waste of moneyâ camps. In our review we are constrained by reviewing how the literature has approached this question. We thus take aid âworkingâ or âeffective aidâ to mean aid that contributes to, or is associated with, even if only modestly, positive development outcomes such as economic growth and social development. This is not an ideal definition but it is common in the literature and thus a review is constrained in opening this question further. Meanwhile, the lack of a counter-factual is the biggest barrier to ever knowing for certain the impact of aid. Interested parties, both informed and uninformed, can question the idea that aid âworksâ; assertions that aid is wholly or in part responsible for impressive improvements in human development in the past couple of decades are questionable. It is also not difficult to find examples where aid has been detrimental to countries and communities and where there may be trade-offs in terms of positive and negative impacts. More modesty is needed in any claims for how aid can contribute to development. However, the evidence, which we discuss in this book, does suggest that aid has contributed in many countries and, despite its many flaws, can continue to do so.
However, we need a new evidence-based narrative, both for its own sake and also because it is more likely to win over sceptics in the medium term. The objective of this book is to encourage the global debate to move on from whether aid âworksâ or not to looking at when aid works and how it can work better. We are, of course, not the first to criticise the binary yes/no approach to aid, but such a simplistic analysis has proven stubbornly persistent, especially in popular discourse. We therefore now call for a clear break. The question âdoes aid workâ has limited use. Instead, one should be concentrating on a question around which we can build some critical pointers from the empirical evidence, and which can influence policy decisions and make a clearer case to citizens in contributor countries: when does aid work (and when doesnât it)?
A first step is to review the evidence. In this book we survey the last ten years of the cross-country literature on aid and growth and, to a lesser extent, health, education, and income poverty. While there is much conflict in decades of evidence on aidâs impact, there are some general guidelines that emerge for policymakers.
The book is structured as follows: In Chapter 2 we set the context with a history of aid effectiveness debates. Chapter 3 then considers why it is so difficult to answer the basic question of when or even if aid âworksâ. Chapter 4 reviews the academic research we have surveyed. Chapter 5 concludes.
This book discusses the nature of evidence on foreign aid and why assessing the impact of aid is so difficult in Chapter 2. In Chapter 3 we outline the main problems with the evidence on aid effectiveness in general, which we group under the issues of definition and methodology. The latter category is further broken down into the fairly intractable problems of causality and bias. Partly in response to the constraints on this area of study we set out our own approach which involves assessing papers which meet a specific set of criteria to look for generalisations to contribute to the debate. We focus on peer-reviewed, cross-country, econometric studies published over the last decade and attempt to make some global-level generalisations on aid with caveats and conditions relating to the context and conditions under which aid might be said to âworkâ.
In Chapter 4 we review aidâs impacts on economic growth and discuss under what conditions aid is most likely to work, outlining areas with signs of convergence and areas of divergence. We also look at the relationship between aid and improvements in social developmentâeducation, health, and poverty reductionâalthough with less of a focus as there are only a few studies which meet our criteria. Broadly speaking, we have found that the most recent studies, over the last decade, have been more positive on the...