From the desk of Adriaan Grobler

Is development aid dead or alive?

Development aid or Official Development Assistance (ODA) is defined by the OECD as “government aid that promotes and specifically targets the economic development and welfare of developing countries”. It’s supposed to help developing countries grow economically and uplift communities. But over the past 30 years, the impact of development aid has been a hot topic for debate, with many arguing that it has almost no impact on economic growth. Is this true? Let’s take a brief look at the history of development aid and the debate around its effectiveness.

Where it started

Development aid, as we know it today, started in the early 1940s with the launch of the United Nations during World War II. During this time, the world’s first aid agency, the United Relief and Rehabilitation Administration (UNRRA), was established, by the allies, to address the devastation caused by the war. It was the forerunner for the UNCR, focusing on aid for refugees, and UNICEF, focusing on children’s aid.

In 1944, The World Bank Group was founded and began to extend its first loans through the new International Bank for Reconstruction and Development (IRBRD). And the multilateral development aid system was born. Not long after, the US began providing strategic financial assistance to European countries, affected by The Cold War, through the Marshall Plan programme. However, many rejected this and saw it as a way to shield the ‘free world’ from communism.

At about the same time, the independence movement was taking hold in Europe’s former colonies and new, bilateral donors began building aid programmes as part of their obligations to these colonies and ideological rivalry.

All of the above was to aid fractured and developing countries to grow their economies and recover their people’s livelihoods. It’s interesting to note that development aid also started to be associated with commercialisation – not just devastation relief. The Japanese saw it as a way to stimulate sales of domestic services and goods.

Five distinct types of development had begun to emerge:

• Multilateral aid, which responds to development priorities.
• Bilateral-altruistic aid, which responds to perceived human needs.
• Bilateral-political/strategic aid, which underlines political influence.
• Bilateral-historical/cultural aid, which reinforces post-colonial alliances.
• Bilateral-commercial aid, which promotes exports and widens markets.

 (Source: Browne, 1997)

Then, In the 1990s, the US started to cut foreign aid by half, and OECD donors began to cut their budgets in line with their foreign policies. Partly, this was due to a lessening in the perceived need for aid. Europe was getting back on its feet, the Berlin Wall had fallen, and the type of aid needed was shifting directions.

Has it worked?

Over the past two decades, development aid has become more controversial as the body of research on the field has grown. And the burning question is, would poor and developing countries have been better off without it? 

There are two main schools of thought on the issue. Pessimists argue that development aid can lead to the Dutch Disease effect, where the negative effects undermine the potential benefits. Some even call it “dead aid” and argue that it’s actively harmful. While cautious optimists argue that there is a positive relationship between aid and growth over time, particularly in the industrial and service sectors.

A tremendous amount of time and energy has been spent on studies that have yielded conflicting results – possibly due to differences in approach and modelling practices. Some results showed that aid focusing on agricultural and health research, technical programmes and international experience had lasting, positive benefits. Others showed that it may have worsened the plight of the poor. Studies that focused on policy changes, strengthening institutional capacity and improving trade, finance conditions and governance showed positive impact, but others argued that a partnership approach would have worked better. However, these studies, and their often theoretical and thin methodologies were under scrutiny for not considering the whole picture.

But most recent empirical studies, with accepted methodologies and a sound understanding of causation and country context, support the view that aid has a positive average effect on growth over time and don’t appear to show that it is actively harmful. 

It’s crucial that future studies are conducted with extreme care to provide donors and governments with a robust and evidence-based understanding of development aid. This helps them to formulate and implement the right policies and make the best possible use of the funding.

What about the future?

So, what is the future of global development aid? We need an integrated short- and long-term approach to address the societal, economic, and environmental challenges we face. Development aid, done right, can help build a more humane and sustainable planet for all.

Development aid has played a crucial role in times of natural disaster and humanitarian and economic crises – most recently in the ongoing Covid-19 pandemic. Developed and developing countries are under pressure to balance fiscal budget constraints with the increasing costs of emergency health measures, social protection programmes, and recovery plans. And governments, particularly those in Africa and Asia, are counting on development aid to help tackle these local, regional and global problems.

Given the challenges we face as a society, now may be exactly the right time for the global community to protect and increase development aid – and harness its benefits for the good of people and the planet.

References

Addison, T., Morrissey, O., & Tarp, F. (2017). The Macroeconomics of Aid: Overview. The Journal of Development Studies,53(7), 987–997. https://doi.org/10.1080/00220388.2017.1303669

Browne, S. (1997). The Rise and Fall of Development Aid. In Working Papers No. 143 (Vol. 72, Issue 3). https://doi.org/10.2307/2625607

Carson, L., Schäfer, H., Prizzon, A., & Pudussery, J. (2021). Prospects for aid at times of crisis (Issue March).

Doucouliagos, H., & Paldam, M. (2009). Conditional aid effectiveness: A meta-study. Journal of International Development, 22(4), 391–410. https://doi.org/10.1002/jid.1582

Gervais, R. (2009). Reviewed Work (s): Dead Aid : Why Aid Is Not Working and How There Is a Better Way for Africa. The International Journal of African Historical Studies, 42(3), 493–495.

Hübler, M. (2017). The Future of Foreign Aid in a Globalizing World with Climate Change. Global Policy, 8(1), 41–51. https://doi.org/10.1111/1758-5899.12351

Official Development Assistance (ODA) – OECD. (n.d.). Retrieved June 17, 2021, from https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/official-development-assistance.htm

Pindiriri, C. (2012). Aid Effectiveness, Development Theories and Their Influence on the Structure and Practices in Development Aid to 3rd World Countries. Research Gate. https://www.researchgate.net/publication/269035512_Aid_Effectiveness_Development_Theories_and_Their_Influence_on_the_Structure_and_Practices_in_Development_Aid_to_3rd_World_Countries