Post on 20-Jul-2020
31 October 2013
What Do We Know About Foreign Aid – at the Aggregate Level?Finn TarpUNU-WIDER
Overview
• Introduction• Aid, growth and development: what do we know?• Poverty: what do we know about developments
since 1990? • Looking post-2015
A reference – 2000
Recent WIDER research on foreign aid
• : A comprehensive research, documentation and communications initiative (initiated in early 2011)
• Motivated by our desire to understand better four key questions about aid:– What works?– What could work?– What is scalable?– What is transferrable?
Point of departure
• Aid is diverse and complex– no single individual can encompass it all => rely on global
network of researchers and policy practitioners
• A sizeable research output now available under 5 core themes (incl. 200 WIDER WPs)– see http://recom.wider.unu.edu/– this presentation meant to provide a ”big picture”
perspective – after which we will focus more specifically on aid and fragility
Aid, growth and development: what do we know?
Where to begin?
• The macro aid and growth literature• Probably the most controversial theme
– Many critical voices: Peter Bauer, Bill Easterly, Dambisa Moyo and others
• They often frame and strongly influence the development debate and there is frequently talk of a micro-macro paradox? – What do we mean by that?– Aid and macroeconomics – Aid, political economy and institutions
• But is it true that the impact of aid “evaporates” as we move from the project (micro) level up to the macro economy? What can we say on balance about aid’s aggregate impact?
It is difficult!
• Aside from ideological debates…..• A thorny econometric challenge: attribution
somewhat elusive – Progress typically associated with less aid– Causality not so easy to establish, so debate ripe with
rhetoric:• Africa, aid, Africa still not developed…..• Anecdotes….
– We need a credible counterfactual (what would have happened without) -> we use statistical methods
Back to basics
• What does lack of statistical significance mean?• “Absence of evidence” vs “evidence of absence” • Just because economists have had a hard time at the macro
level does not in and by itself prove aid impact is not there• Time has been passing: the macro-evidence now piling up –
and, yes we can say quite a lot – based on WIDER research • A brief summary:
– Cross country (vs. Rajan & Subramanian): Journal of Globalization and Growth + update and unpacking: World Development
– Time series – 36 individual African countries (Juselius): Oxford Bulletin of Economics and Statistics
– Time series (vs. Dreher, Klasen, et al.): World Development– Meta (Doucouliagos and Paldam): Journal of Development Studies– Simulations –> heterogeneity….BUT OVERALL RESPECTABLE RATE OF RETURN
Poverty: what do we know?
Poor nations: some questions and answersQ. Why are some countries poor? A. Poor countries produce very little.
Q. Why do poor countries produce so little?A. Poor countries employ rudimentary technology, possess limited
stocks of human and physical capital, and weak institutional structures.
Q. Why do poor countries lack the wherewithal to produce?A. Poor countries have not managed to accumulate over time.
Growth is a long run and fragile process of accumulation.What does this mean for the analysis of aid and development?
Poverty is falling – but remains a huge challenge• Since 1990: people living
on less than $1.25 has fallen in every region, including sub-Saharan Africa:– In 1990 ≈46% (or ≈2 billion
people) were extremely poor– Estimates predict that that
the MDG target of cutting extreme poverty by half will be achieved by 2015
– Still: ≈1 billion people (≈14%) remain in extreme poverty
– Fragile states not on track to reach MDGs
% of people living on less than $1.25 USD (2005 PPP)
0 20 40 60 80
Developing Regions
Northern Africa
Sub-Saharan Africa
Latin America and theCaribbean
Eastern Asia (China only)
Southern Asia
Southern Asia excludingIndia
South-Eastern Asia
Western Asia
Oceania
Caucasus and Central Asia
2008
1990
Under-five mortality rate: 1990-2010
0
20
40
60
80
100
120
140
160
180
200
1990 2010
Sub-Saharan Africa
Southern Asia
South-Eastern Asia
LAC
Eastern Asia
Developed countries
Primary school enrolment, 1990-2010 (%)
1990 2010
Boys Girls Boys Girls
Developing world 84 75 91 89
Sub-Saharan Africa 57 50 78 74
Latin America and the Caribbean 88 84 96 95
Eastern Asia 99 96 97 97
Southern Asia 83 66 94 91
South-Eastern Asia 94 91 95 96
Western Asia 87 79 94 89
Developed Regions 95 95 97 97
Growth has been poverty reducing
Poverty increasingly associated with middle-income countries (often with high levels of inequality)
People living on less than $1.25 USD a day (2005 PPP)
0
10
20
30
40
50
60
70
80
90
100
1990 2008
% o
f glo
bal p
over
ty Low-incomeCountries
Middle-incomeCountries
0 20 40 60
South Asia
Sub-SaharanAfrica
East Asia
Latin America
MENA
% of global poverty
20081990
Inequality remains a major challenge
Inequality measured by mean-log deviations of income
0.05.0
10.015.020.025.030.035.0
Gap between high-and low-income
countries
Gap between high-and upper-middleincome countries
Income gap between country groupings
Constant 000 US$ (2005 PPP)
1980 2010 00.10.20.30.40.50.60.70.80.9
1
1981 1990 1999 2008
Latin Americasub-Saharan AfricaEast Asia
Looking post-2015
The new faces of the development challenge• To the extent the existing aid system was designed at
all, it was designed to improve the livelihoods of poor people in poor countries.
• Much has been achieved. Many countries (including former fragile states) have “graduated” and new donors have emerged (Republic of Korea).
• And looking beyond 2015: in 10 years 36 of 68 current IDA recipients will graduate out of IDA – Especially the large countries will graduate: India, Vietnam,
Pakistan, Nigeria, Ghana and Kenya – Population in IDA eligible countries will fall from 3 to 1 billion)
So: should we worry about aid post-2015? • Aid’s critics would say no
– Some even say growth will rise if aid is eliminated, others say aid has no effect
• The weight of the existing up-to-date analytical and big-picture evidence clearly suggests this is unfounded: – Aid has (on average) helped countries grow and reduce
poverty over the past decades• But while progress has been realized major
challenges remain which future aid efforts must address
Key challenges moving forward
• Aid must post-2015 adapt to emerging national and global contexts, including how to deal with:– Increased complexity (on supply side)– The new geography of poverty– Global public goods (climate, health)– And a “hard core” of fragile states (including building state
capability): TODAY’S FOCUS• Much of this is unknown territory -> the need for
high quality policy research• With ReCom UNU-WIDER hopes to have helped
move this agenda forward in a constructive manner
A Bird’s-eye View of Current UNU-WIDER Research on Fragility
Rachel M. GisselquistUNU-WIDER
ReCom: Governance & Fragility
• ReCom works with an interdisciplinary, global network of experts– to address identified knowledge gaps, and– to communicate and discuss findings with a wider audience.
• The Governance and Fragility theme draws on some 80 UNU-WIDER studies, including 7 collaborative projects.
• For more, see wider.unu.edu/recom
Theme 1The challenge of chronic state weakness
In Conflict(peacemaking, peacebuilding)
Post-conflict(DDR, reconstruction)
Chronically Weak
(state-building, conflict
prevention)
Theme 2Context matters a lot. And, so what?
• Ignoring contextual factors has exacerbated the challenges of institutional development.
• But, accepting that context matters is not enough. We need greater precision on how – and how not –and what precisely to do about it.
Theme 3 The dilemmas of local ownership• A “lack of political will”
to provide basic public goods suggests the lack of a genuine national development agenda
Incentivize political will?Deal with other actors
(local governments, civil society, traditional authorities)?
• A “lack of capacity” suggests the inability to lead and implement a national development agenda
Provide technical assistance?
Act in place of the state?
Theme 4Speaking to Peacebuilding & Statebuilding GoalsLegitimate
Politics
Democratic Trajectories in Africa:
Unraveling the Impact of Foreign Aid
(Resnick & van de Walle, OUP 2013)
”Consociational Settlements and Reconstruction:
Bosnia in Comparative Perspective” (Stroschein)
Security
”Policing Reforms and Economic
Development in African States:
Understanding the Linkages,
Empowering Change” (Marenin)
”Liberia’s Gender-Sensitive Police Reform: Starting
from Scratch? Improving
Representation and Responsiveness”
(Bacon)
Justice
“Impact Assessment of the Facilitadores
JudicialesProgramme in
Nicaragua” (Barendrecht et al.)
”Transitional Justice and Aid” (Hellsten)
Economic Foundations
“Aid and EmploymentGeneration in
Conflict-Affected Countries:
Recommendations for Liberia” (del
Castillo)
“Economic Governance:
Improving the Economic and
Regulatory Environment for
Supporting Private Sector Activity”
(Kirkpatrick)
Revenues & Services
”Taxation and Development: A Review of Donor
Support to Strengthen Tax
Systems in Developing
Countries” (Fjelstad)
”How to Spend It: The Organization of Public Spending and Aid Effectiveness”
(Collier)
www.wider.unu.eduHelsinki, Finland