FOREIGN AID

Foreign Aid

Foreign Aid

Introduction

Little work in the discipline of geography has been done on the study of spatial distributions of foreign aid. Most of the studies that explored the iSSue from a geographic perspective are dominated by disciplines such as international relations and political science.

Nevertheless, a brief look at foreign aid flows during the postwar period reveals that the bulk originates from the 22 DAC members, which consist of the 15 original European Union members, Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the United States. Among these, the United States contributes the most, followed by Japan and the EU members.

Discussion

In absolute terMS, foreign aid has grown since the 1960s. There is a clear decline, however, when foreign aid is measured as a proportion of the gross domestic product (GDP). The figure is far below 0.7%, which is the goal set by the OECD. Between 1990 and 1996, the average GDP proportion for the DAC members declined from 0.33% to 0.22%. Today, only a few DAC members, such as Norway, Denmark, Luxembourg, Sweden, and Holland, are fulfilling the goal of 0.7%.

From the recipient perspective, the inflows have been quite diverse for the different regions. The most populated region, Asia, has received much less foreign aid per capita than both Africa and Latin America. Between 1960 and 2004, the inflows to Asia have been very stable and low, always below $1 per capita. Paradoxically, the material and economic conditions, especially the economic growth, are today far better in East Asia than elsewhere. This observation reemphasizes the idea that foreign aid is only one part of economic development and could never explain the motions of economic development per se.

It is worth noting that the practice of foreign aid is no longer exclusive to the developed world as countries such as China, India, and South Korea are becoming important donors.

After more than 50 years and more than $1 trillion spent on foreign aid, there is still no compelling evidence that aid promotes economic development. Many scholars suggest that foreign aid can only play a modest role. Endogenous factors such as the institutional environment and the competence and goodwill of the leadership are crucial. Much research claims the relevance of the above-mentioned factors; some refer to them as the absorptive capacity of recipient countries.

However, opinions differ on how the donor community should proceed. There are those who underline the opportunities that an increase in foreign aid could ensure, while others draw attention to the negative effects it might engender. The first group claims that with an increase in foreign aid combined with better donor coordination, foreign aid can improve the economic situation in recipient countries. In opposition, the latter group suggests that with more foreign aid, dependency will grow stronger, while the capacity to mobilize domestic resources, to create a national economic basis, and to compete internationally will be drastically diminished. These critics also warn that corruption may increase in the foreign aid chain.

Aid Effectiveness

One of the most influential early papers on the impact ...