Politics and Aid

  • Katherine V. BryantEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-31816-5_2527-1

Keywords

Recipient Country Gross National Product Official Development Assistance Development Assistance Committee Multilateral Institution 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Synonyms

Definition

Politics and aid refers to the ways in which domestic and international political forces shape policies related to foreign aid.

Introduction

Aid is perhaps one of the most debated topics in foreign policy. Despite decades of research, controversies persist on issues such as how much money should be spent on aid, who should receive aid, and whether aid is actually promoting the welfare of recipient countries. These are important questions to ask because aid has the potential to drastically alter the global landscape by eliminating poverty and promoting good governance. However, achieving this success is fraught with political difficulties for both donors and recipients. Finding support for aid, determining how it is allocated, and evaluating its effects are all suffused with political influences from individuals, donor countries, international institutions, and the recipients themselves. As global priorities shift and poverty continues to thrive, future aid research will have to address more fully the political nature of aid policies. After providing some background information on foreign aid, this article examines the political nature of three aspects of aid: how much aid is supported, where and how aid is allocated, and whether or not aid has been successful in promoting development. The article concludes by summarizing future directions for foreign aid research.

Who Provides Aid?

What exactly is foreign aid? Lumsdaine (1993) defines aid as “gifts and concessional loans of economic resources, such as finance and technology, employed for economic purposes provided to less developed countries by governments of the developed democracies, directly or through intermediaries such as UN programs and multilateral development banks” (Lumsdaine 1993, p. 33). The Organization for Economic Co-operation and Development (OECD) defines aid, or official development assistance (ODA), in much the same way. According to the OECD, aid must be provided by official donors such as governments, their executive agencies, or multilateral institutions with the intent of furthering the economic welfare of its recipients. Military aid, peacekeeping, and anti-terrorism activities are therefore excluded from ODA. Aid can be given as general budgetary assistance, also known as program aid, or as project aid where it is directed toward a specific project within the recipient country. Project aid can support activities in sectors such as healthcare, education, infrastructure, promoting governance and civil society, or supporting certain economic production areas.

As noted above, there are two types of donors that can provide ODA. The first are donor governments, or bilateral aid. Within the OECD, 29 countries are members of the Development Assistance Committee (DAC) which serves as an international forum for the largest aid donors. Table 1 lists the members of the DAC. As Table 1 demonstrates, the majority of the countries included in the DAC are from Western Europe and North America. While these countries still provide a significant portion of today’s ODA, the number of non-DAC aid donors is growing, as is the size of their aid contributions (Woods 2008). China, for instance, provides billions of dollars in aid, especially to African countries. Saudi Arabia, Brazil, and India are also notable aid donors that are not members of the DAC. While most analyses of aid have focused their attention on ODA from DAC members, more recent research has focused on the quantity and quality of aid from these rising non-DAC donors.
Table 1

Members of the OECD DAC

Australia

Greece

Poland

Austria

Iceland

Portugal

Belgium

Ireland

Slovak Republic

Canada

Italy

Slovenia

Czech Republic

Japan

Spain

Denmark

Korea

Sweden

European Union

Luxembourg

Switzerland

Finland

The Netherlands

United Kingdom

France

New Zealand

United States

Germany

Norway

 

Source: OECD Statistics

The second type of donors that can provide ODA is multilateral aid agencies. A multilateral agency is an international organization whose primary purpose is to promote development. The agency is funded by donor countries and then pools these funds and subsequently determines how, where, and when to allocate those funds. This creates a principal-agent relationship between donor governments and multilateral aid agencies. Multilateral aid agencies include development banks, UN agencies, and regional groupings. Although not exhaustive, Table 2 lists 40 of the most prominent multilateral aid agencies operating today. It should be noted, however, that hundreds of additional multilateral aid agencies also exist.
Table 2

Multilateral aid agencies

Agency

Abbreviation

African Development Bank

AfDB

African Development Fund

ADF

Arab Bank for Economic Development in Africa

BADEA

Arab Fund (Arab Fund for Economic and Social Development)

AFESD

Asian Development Bank

ADB

Asian Development Bank Special Funds

ADF Spec. Funds

Caribbean Development Bank

CDB

Central American Bank for Economic Integration

CABEI

EU Institutions

EU

European Bank for Reconstruction and Development

EBRD

European Commission

EC

European Development Fund

EDF

European Investment Bank

EIB

Global Alliance for Vaccines and Immunizations

GAVI

Global Environment Facility

GEF

Global Fund

Global Fund

Inter-American Development Bank

IDB

Inter-American Development Bank Special Fund

IDB Spec. Funds

International Fund for Agricultural Development

IFAD

International Bank for Reconstruction and Development

IBRD

International Development Association

IDA

International Development Association-Multilateral Debt Relief Initiative

IDA-MDRI

International Finance Corporation

IFC

International Monetary Fund (Concessional Trust Funds)

IMF

Islamic Development Bank

Isl. Dev. Bank

Joint United Nations Programme on HIV/AIDS

UNAIDS

Multilateral Investment Guarantee Agency

MIGA

Nordic Development Fund

Nordic Fund

OPEC Fund for International Development

OFID

Office of the United Nations High Commissioner for Refugees

UNHCR

Organization for Security and Co-operation in Europe

OSCE

United Nations Democratic Republic of the Congo Pooled Fund

DRCPF

United Nations Development Program

UNDP

United Nations Economic Commission for Europe

UNECE

United Nations International Children’s Emergency Fund

UNICEF

United Nations Peacebuilding Fund

UNPBF

United Nations Population Fund

UNFPA

United Nations Relief and Works Agency for Palestine Refugees in the Near East

UNRWA

World Food Programme

WFP

World Health Organization

WHO

Source: OECD Statistics

Within multilateral aid funding, there is also an important distinction in the type of aid they receive. In recent years, donor countries have increasingly funded multilateral agencies through noncore aid contributions. These noncore aid funds are earmarked for a specific recipient, sector, or project, essentially undermining the ability of multilateral agencies to determine their own aid policies for these funds. In 2012, donor governments contributed $17 billion to multilateral aid agencies through noncore funding, accounting for 13 % of all ODA (Tortora and Steensen 2014, p. 7). Noncore funding is becoming more prevalent as well, growing by 8 % from 2009 to 2010 (Multilateral Aid Report, 2012). The consequences of this shift from core to noncore funding of multilateral aid agencies remain to be seen. On the one hand, it may allow donor governments the opportunity to distribute aid to a desired sector or recipient that they may be unable to reach if acting independently. If the specified sector or recipient is largely ignored by the aid community, then the provision of noncore aid from the donor government may be beneficial. However, there are negative aspects associated with earmarked funding as well, such as increasing the administrative costs incurred by multilateral agencies, as well as potentially undermining their overall utility by diminishing the agency’s control over its own funds.

Bilateral and multilateral aid organizations each offer different types of benefits. Bilateral aid enables the donor state to maintain control over how aid funds are used. This allows the donor government to pursue their national interests or ensure that domestic firms are chosen to implement developmental projects. Multilateral aid, on the other hand, takes control away from the donor states and invests it in a third party. Rather than being controlled by a single donor government, a multilateral aid agency is governed by a group of contributing donor governments. Since the preferences of the donor governments are aggregated into a single agency, multilateral aid is able to operate in an environment further removed from the domestic political constraints that are often placed on bilateral aid agencies. These constraints are discussed in more detail in the sections below.

Determining Support for Foreign Aid

Decisions regarding foreign aid allocation – choosing who gets how much and in what form – have sparked continued domestic and international controversy. Although in 1970 the international community established a target for DAC members to contribute 0.7 % of their gross national product (GNP) to ODA, this standard has only been met by a handful of countries. In fact, DAC members on average have never contributed more than 0.4 % of their GNP. To a large extent, researchers have attributed this shortcoming to a lack of public support for aid, as well as country-specific factors that may impact aid policies. In a broad analysis of both of these explanations, Paxton and Knack (2011) use two global public opinion surveys to investigate what determines support for foreign aid, both at the individual and country levels. Using a multilevel model, the authors find that for individuals, factors such as gender, income, political ideology, religion, interest in world affairs, and trust in foreign aid and government all have significant effects on levels of support for foreign aid. Women and individuals with higher incomes generally support foreign aid more. The authors also find that individuals with left-leaning political ideologies have more positive views toward foreign aid, supporting other researches that have been previously conducted regarding aid and political ideology. At the country level, the authors find that richer countries are generally more supportive of increasing aid, although larger countries are less supportive. Countries that are former colonizers are also more likely to provide greater levels of aid. Last, countries that already provide relatively large amounts of aid are significantly less supportive of increasing those amounts.

It is worth briefly returning to the question of ideology’s influence on support for foreign aid. Conservative governments are generally critical of foreign aid for two main reasons. The first is that it creates redundancy and undermines efficiency in the developing world. Rather than providing loans and investment through aid funds, conservatives argue that privatization would be more pragmatic. Second, aid is resisted as it is thought to be similar to the welfare state, leading to higher taxes and greater government dependence. Liberal governments, on the other hand, are generally expected to support foreign aid as it addresses unequal income distribution on an international level. Somewhat surprisingly, research in this area remains rather limited. While several studies have examined government ideology and support for aid, their analysis has generally been restricted to short cross-sectional analyses. Tingley (2010) presents a thorough test of these arguments by examining the influence of various political factors on aid. Using a time-series cross-sectional analysis of DAC donors from 1971 to 2002, he presents the most comprehensive test of this relationship. His results indicate that conservative governments are indeed less likely to provide aid than liberal ones. Interestingly, he also finds that this relationship is especially pronounced for aid flows to lower-income developing countries and multilateral aid agencies, whereas conservative governments continue to support aid to developing countries with higher income levels. Such a result may be attributed to the importance of economic policy on aid flows, which is addressed in the next section.

Debates on Aid Allocation

When the era of foreign aid began in the 1950s, for the first time ever, there appeared a systemized sense of moral obligation by states to help those that were less fortunate. As articulated in Truman’s inauguration speech after World War II, Western states believed that “…only on the basis of a just international order in which all states had a chance to do well was peace and prosperity possible” (Lumsdaine 1993, p. 30). The vision was that foreign aid would help contribute to world peace by encouraging development in poor countries and alleviating the suffering that underlies violent uprisings. In reality, however, aid quickly became a tool of statecraft, one that often disregarded the needs of the developing world in order to ensure the advancement of political agendas. This is particularly true of bilateral aid donors, who often give aid in a manner that benefits their own political or economic interests. Although initially meant to spur development, bilateral aid is now often cited as a political tool that can be used to extract valuable policy concessions from recipient governments or to gain support for foreign allies. For instance, in their game-theoretic model, Bueno de Mesquita and Smith (2007) demonstrate how bilateral aid is used by recipient leaders to bolster their domestic political support. In return, recipient leaders offer policy concessions to donor governments, often in the form of political or economic benefits to the donors. Political factors such as military importance, past colonial relationships, and UN voting behavior are all prominent factors driving aid allocation. During the Cold War in particular, the USA gave substantially more aid to its allies. Although this trend diminished in the 1990s, the events of September 11th prompted a renewed motivation for aid to be provided for political purposes.

Recipient countries can also attract foreign aid by offering potential economic benefits to donor governments, including access to natural resources, favorable trade terms, and domestic policies that support donor firms. This type of economic patronage is often provided in the form of tied aid, or aid that is dispensed with the contingency that the goods and services it provides be implemented or sourced by the donor state. For example, Fleck and Kilby (2001) found that of the $12.9 billion that the US Agency for International Development (USAID) provided in contracts during 1995, $11 billion of that went directly to US firms. Other studies have documented that the more goods a recipient imports from a donor government, the more aid they are likely to receive from that donor. This limitation on the choices that a recipient country has for actually using their aid can significantly constrain aid effectiveness. According to one study, tied aid is 15–25 % less cost-effective compared to untied aid (Clay et al. 2009). While the percentage of untied bilateral aid from DAC members has grown in recent years, there is still much improvement to be made.

In contrast to the political and economical motivations that underlie aid provided by donor governments, multilateral institutions base their allocation patterns on different factors. Multilateral institutions are more likely to be concerned with issues of recipient need and the quality of governance, indicated by factors such as democratic political institutions, the rule of law, and respect for property rights. In this way, multilateral aid is more “selective” than bilateral aid (Dollar and Levin 2006). Further research has also demonstrated that multilateral agencies base their aid allocations on human rights considerations as well, whereas bilateral donor do not appear to factor human rights abuses into their allocation decisions (Neumayer 2003). On the other hand, multilateral agencies have been criticized by environmentalists for failing to be responsive to the environmental concerns of recipient countries (Hicks et al. 2010). Furthermore, substantial variation exists within multilateral agencies with regard to their allocation patterns. Neumayer (2003), for example, finds that UN agencies are more likely than regional development banks to be concerned with human rights issues.

A final factor to note within multilateral aid allocation policies is that the internal characteristics of the agency can also affect their distribution patterns. Schneider and Tobin (2013) demonstrate this by discussing political interactions occurring within the European Commission (EC). The authors find that when there is a powerful coalition of members within the EC, they are able to manipulate its actions and direct more aid to countries that they have economic, political, or strategic interests in. However, when the members have divergent preferences over allocation, they are unable to manipulate the actions of the EC, allowing the agency to distribute more aid to poorer countries. Therefore, although multilateral aid agencies are more removed from domestic political influences, they are not free from them.

Debates on Aid Effectiveness

The third aid-related debate addressed here is that of foreign aid effectiveness. Essentially, the question is whether or not aid is actually promoting development. Although development can encompass multiple factors including improvements to healthcare, education, access to clean water, and improved government institutions, the majority of the studies have focused on the relationship between aid and economic growth rates. Aid is thought to contribute to the economy of recipient countries through increasing capital spending, transferring technology or knowledge, leading to changes in economic and political institutions, and enhancing worker productivity through improved healthcare and education.

The current state of the literature regarding aid’s effectiveness is quite mixed. While several studies conclude that aid and growth have a generally positive relationship, much of the literature has produced conditional findings. The seminal work by Burnside and Dollar (2000), for instance, demonstrates that aid can increase economic growth when it is given to countries with good political institutions. Although this finding was challenged by Easterly et al. (2004), other studies have also concluded that aid can be effective when given in a conditional manner. Several studies, however, have sharply challenged this finding that aid has led to economic growth, even if this finding is conditional. These critics argue that aid actually undermines economic performance in that it reduces savings, leads to currency appreciation, and discourages private investment (Radelet 2006). Aid has also been criticized because it is seen as contributing to corruption and perpetuating the rule of autocratic leaders. According to this argument, aid insulates leaders from domestic politics as it allows them to ignore public opinion and utilize aid for personal gains. As a result, it is more difficult for these autocrats to be overthrown domestically and their often incompetent rule is maintained at the cost of achieving positive development results.

Much of this discrepancy in the literature is due to a large degree of variation in the data and methodological specifications of empirical tests of aid and growth. Of particular concern for researchers has been the difficulty of properly modeling the potentially endogenous nature of aid and growth. That is, while aid may be spurring economic development, it is also possible that aid is targeted toward countries with better economic performance. Finding ways to deal with this endogeneity has ranged from using instrumental variables to using a generalized method of moment estimation which is more sophisticated but also more sensitive. Other empirical issues include the amount of time over which aid’s impacts are evaluated, the type of aid that should be expected to improve economic growth rates, and potentially nonlinear impacts of aid. As methodological approaches improve, so too will future analyses on aid effectiveness.

Conclusion

Despite being the subject of an immense amount of research for the past 60 years, there is still much work to be done in terms of understanding foreign aid. In particular, future research must address new political influences that are shaping aid policies. These include the rise of noncore aid, which may substantially alter the operations of multilateral aid agencies. Also of growing concern is the rising prominence of new donors within the aid community. While developed democracies have been the dominant sources of aid donations for decades, non-DAC countries in emerging economies have been providing increasing levels of development aid. Future research should examine both the domestic determinants of this aid and its effects in addressing global poverty. Last, while aid recipients have often been on the outside of decisions regarding aid policies, today they are taking on a more prominent role. With increased calls for cooperation, recipients have potentially more influence over aid policies today than ever before. Whether or not this influence and the actions of both DAC and non-DAC donors can push development further and help in achieving the Sustainable Development Goals (SDGs) before 2030 remains to be seen.

Cross-References

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.Westmont CollegeSanta BarbaraUSA