The concept of aid effectiveness
Any discussion of "effectiveness" must rely on understandings or assumptions about aims. In public discussions of aid effectiveness, the general aim is usually assumed to be boosting the development of recipient countries and, hence, the well-being of people living in them. But " development" and "well-being" are complex and slippery concepts. The most popular summary indicator for a country's development is probably average national income per head in its population, but this indicator does not capture inequalities of wealth and power, or the structural characteristics of the country's institutions and economy. Since the 1990s the prime purpose of aid has widely been seen as poverty reduction, but this, too, can be interpreted in a variety of ways (How soon? How sustainable? What level?). Such ambiguities should be clarified or at least borne in mind when considering aid effectiveness. Under the main international definition of aid – Official Development Assistance – any self-seeking motives of aid donors are supposed to be strictly subordinate to the objective of promoting the economic development and welfare of developing countries. Such motives – which may involve strategic alliances, diplomatic trade-offs, commercial advantages and other political benefits – are nowadays usually discussed as obstacles to aid effectiveness rather than alternative aims. In the first decade of the 20th century, "aid effectiveness" was the declared focus of a movement joined by major donor and recipient countries and aid-related organisations, involving a series of high level forums on aid effectiveness. The agenda of this movement was largely about good practices in donor-recipient relationships, and in some cases these good practices became seen as proxies for aid effectiveness.History
The historical themes of aid effectiveness are rather different for humanitarian aid and developmental aid, so these have been treated in different sections below.Development aid effectiveness (historical perspective)
1945 – early 1970s: Post-war boom
Although US aid is widely credited with having hastened the reconstruction of western Europe after World War II, there have been doubts about the effectiveness of this aid. G. A. Duncan in 1950 deplored the governmental character of Marshall Aid, arguing that private loans could have achieved the economic purposes more efficiently. He acknowledged that the provision of official aid also had other – political – purposes. When US economic aid shifted from Europe to poorer countries – as initially signalled byEarly 1970s – mid-1990s: The rise of neoliberalism
The end of the post-war boom – marked particularly by theLate 1990s onward: Millennial partnerships
=''The global "effectiveness" movement''
= Aid effectiveness became more strongly recognized as a global multilateral objective in 2002 at the International Conference on Financing for Development in Monterrey, Mexico, which established the Monterrey Consensus. There, the international community agreed to increase its funding for development—but acknowledged that more money alone was not enough. Donors and developing countries alike wanted to know that aid would be used as effectively as possible. They wanted it to play its optimum role in helping poor countries achieve the Millennium Development Goals, the set of targets agreed by 192 countries in 2000 which aimed to halve world poverty by 2015. Over the following nine years, a process punctuated by four high level forums on aid effectiveness (Rome 2003, Paris 2005, Accra 2008 and Busan 2011) consolidated a set of recognised good practices in aid effectiveness, and a framework for monitoring them. In 2011 the dominant global agenda on "aid effectiveness" was subsumed in a broader movement for "effective development cooperation". This was embodied in the Global Partnership for Effective Development Co-operation (GPEDC) mandated at the Fourth High-Level Forum on Aid Effectiveness in Busan in 2011. GPEDC endorsed the prior "aid effectiveness" principles and commitments, and added others more widely concerned with development cooperation. Another global partnership that follows the "effective development cooperation" approach iHumanitarian aid effectiveness (historical perspective)
Widespread famine in Biafra during the Nigerian Civil War (1967–1970) led to greater NGO involvement in events like the Biafran airlift being attempted for the first time. The way in which aid was allocated during theFindings and critiques on aid effectiveness
There is wide agreement that aid alone is not enough to lift developing countries out of poverty and that it is not the most powerful potential instrument for promoting this end. The debates on aid effectiveness are over the degree of significance of aid's effects, the extent of its unfavourable effects, and the relative effectiveness of different kinds of aid.Major critiques
P. T. Bauer
British economist P. T. Bauer argued that aid did more harm than good, notably in his books "Dissent on Development" (1972) and "Reality and Rhetoric" (1984). The main harmful effect was that aid channelled resources through governments, enabling inefficient state planning and producing a general "politicization of life" in which the population shifted its activities to the political sphere rather than the economic one. On the other side, Bauer saw aid's benefits as being limited to the avoidance of commercial loan costs, which he did not consider to be a significant factor in countries' development (pp. 47-49). He believed that the choices of aid projects were usually controlled by recipient governments less interested in alleviating poverty than enriching the elite (pp.49-52).Dambisa Moyo
Noted Zambian economist Dambisa Moyo has been a fierce opponent to development aid, and calls it “the single worst decision of modern developmental politics”. Her 2009 book, Dead Aid describes how aid has encouraged kleptocracies, corruption, aid-dependency and a series of detrimental economic effects and vicious downward spirals of development in Africa. She argues that foreign aid provides a windfall to governments which can encourage extreme forms of rent-seeking and through providing a positive shock of revenue, lead to Dutch Disease. Furthermore, this easy money offers governments an exit from the contract between them and their electorate: the contract that states that they must provide public goods in exchange for taxes. In short, it "allows the state to abdicate its responsibilities toward its people". It is important to note that Moyo alludes specifically to government bilateral and multilateral aid and not small-holder charity, humanitarian or emergency aid. Her prescriptions call for increased trade and foreign direct investment, emphasizing China's burgeoning role in Africa. Moyo also makes a case for micro-financing schemes, as popularized by the widespread success of Grameen Bank, to spark entrepreneurship within the continent on the ground level, thus building from the bottom-up as opposed to the top-down approach aid takes.Econometric Studies
Many econometric studies have attempted to establish broad conclusions about aid, using regression analysis on a panel of recipient countries (seeing if their differing amounts and timings of aid received could be correlated with development indicators). These have created a mixed picture on the average effectiveness of aid, but one in which pessimism in the late 20th century has seemed to yield to qualified optimism in the early 21st century. See the table in the sub-section on "Major econometric studies and their findings", below.Challenges for measurement
It must be borne in mind that such econometric studies face many problems. One challenge for assessing the effectiveness of aid is that aid is intended to serve a variety of purposes: some of it is aimed primarily at poverty alleviation, some at economic growth, and some at other objectives such as better governance or reduction of social inequalities. Often it is not very clear what objectives are foremost, making it hard to measure results against intentions. Roodman (2007), for instance, discovered that the results of seven previous econometric studies – including the very influential one by Burnside and Dollar (1997, 2000) – could not survive defining key terms in other plausible ways. Moreover, different objectives have different implications for the time-scale in which results should be sought. Varying sectors and modalities of aid have different effects, as do the contextual factors in recipient countries. However, increasingly sophisticated analyses have made progress in accounting for these complicated effects. Econometric studies frequently show more pessimistic results than might be expected from the accumulation of successes reported by donor and implementing agencies in their projects and programs. Paul Mosley termed this the micro-macro paradox and offered three potential explanations: inaccurate measurement, fungibility, and "backwash" or negative side-effects of component aid projects. The micro-macro paradox has also been attributed to inadequate assessment practices. For example, conventional assessment techniques often over-emphasize inputs and outputs without taking sufficient account of societal impacts. The shortcomings of prevalent assessment practices have led to a gradual international trend towards more rigorous methods of impact assessment.Major econometric studies and their findings
The main findings of major econometric studies are summarized in the following table. , + Table of econometric studies on aid effectiveness ! Author/year ! Period ! Findings on aid effectiveness; , - , Mosley 1987 , 1960-1980 , Aid had no significant effect on economic growth. The reason seemed to be fungibility: aid likely released other resources for unproductive uses. , - , Boone 1996 , 1971-1990 , Aid had no clear effect on rates ofAnalyses of factors limiting aid effectiveness
Aid fragmentation
Aid flows significantly increased in the first decade of the 21st century, but at the same time aid has become increasingly fragmented. There was an explosion in the number of donors, and while the number of projects multiplied, their average size dropped. Small projects being often limited in size, scope and duration, they resulted in little lasting benefit beyond the immediate effect. With more players, aid became less predictable, less transparent and more volatile. Fragmentation means an increase in costs for recipient countries, as government offices are forced to divert administrative resources to cope with requests and meetings with donors Decades of development have shown that if countries are to become less dependent on aid, they must follow a bottom-up approach, where they determine their own priorities and rely on their own systems to deliver that aid.Volatility/unpredictability of aid
Information, at the donors' as well at the recipients' level, is often poor, incomplete and difficult to compare with other data, and beneficiaries' feedback and formal project evaluations are rare. Aid is predictable when partner countries can be confident about the amount and the timing of aid disbursement. Not being predictable has a cost: one study assessed the deadweight loss associated with volatility at an average of 10% to 20% of a developing country's programmable aid from the European Union in recent years.Kharas, H. "Measuring the Cost of Aid Volatility". Wolfensohn Centre for Development, Working Parper 3, Brookings Institution, Washington D.C. 2008Reducing the accountability of governments
Revenue generation is one of the essential pillars for developingThe tying of aid
Tied aid is defined as project aid contracted by source to private firms in the donor country. It refers to aid tied to goods and services supplied exclusively by donor country businesses or agencies. Tied aid increases the cost of assistance and has the tendency of making donors to focus more on the commercial advancement of their countries than what developing countries need. There are many ways aid can be designed to pursue the commercial objectives of donors. One of such pervasive means is by insisting on donor country products. Others have argued that tying aid to donor-country products is common sense; it is a strategic use of aid to promote donor country's business or exports. It is further argued that tied aid - if well designed and effectively managed - would not necessarily compromise the quality as well as the effectiveness of aid. However, this argument would hold particularly for programme aid, where aid is tied to a specific projects or policies and where there is little or no commercial interest. It must be emphasized, however, that commercial interest and aid effectiveness are two different things, and it would be difficult to pursue commercial interest without compromising aid effectiveness. Thus, the idea of maximizing development should be separated from the notion of pursuing commercial interest. Tied aid improves donors export performance, creates business for local companies and jobs. It also helps to expose firms, which have not had any international experience on the global market to do so.Tied Aid and Multi-Donor Budgetary SupportFungibility of aid
Aid is often fungible, meaning that aided activities which appear to be successful may be filling a role that would have been covered anyway by local resources; the effect of the aid is thus only to release those local resources for other purposes, which may not be so desirable.Ways to improve aid effectiveness
Targeting aid more precisely
Using the private sector
According toSensitivity to recipient country institutions
Since the effectiveness of aid usually depends on the good-functioning of institutions in the recipient country, and since potential recipients are very varied in this respect, Charles Kenny (2006) argues that aid strategies must be tailored to the state of institutions in each case. Where institutions are strong, it is appropriate to provide programmatic aid. Where they are weak, there may be a role for aid in analysis, consensus-building and technical assistance to improve them, and meanwhile other "insulated" projects might go ahead if they do not harm the prospects for developing sound governmental institutions.Reform of state institutions
Noted Peruvian economist,Best practices according to the High Level Forums on Aid Effectiveness
The Paris Declaration and other results of the High Level Forums on Aid Effectiveness (2003-2011) embodied a broad consensus on what needed to be done to produce better development results. Its principles lay open the possible ways to undertake, which can be interpreted also as the major objectives of good aid: fostering recipient countries' ownership of development policies and strategies, maximizing donors' coordination and harmonization, improving aid transparency and mutual accountability of donors and recipients, just to name a few. The forums were supported by work done by the OECD, which had explored—through peer reviews and other work by the Development Assistance Committee (DAC)—the reasons why aid has and has not worked. This has resulted in a body of best practices and principles that can be applied globally to make aid work better.Improving aid transparency and mutual accountability of donors and recipients
Some believe that the way to improvement is through better monitoring and evaluation, increased transparency, accountability and learning. For instance, Stefan Schmitz, a former senior aid official in the German government and the OECD, has argued that reporting duties, results-orientated action and ongoing performance assessments are essential for the sake of aid effectiveness, but political will must be already there for this to happen. The Accra Agenda for Action states that transparency and accountability are essential elements for development results, as well as drivers of progress. Mutual accountability and transparency is one of the five partnership commitments of the Paris Declaration. Through 'transparency', donors and recipients can be held accountable for what they spend and aid can be made more effective by knowing the three Ws of transparency: * Who gives money to which recipient? * What project is being funded and for what purpose? and * Where? Transparency offers a valuable answer to insecurity, making aid "predictable" and "reliable". Transparency has been shown to improve service delivery and to reduce opportunities for diversion and therefore corruption. Transparency can be defined as a basic expression of mutual accountability. Mutual accountability can only work if there is a global culture of transparency that demands provision of information through a set of rules and behavioral norms, which are difficult to enforce in the case of official development cooperation. In particular for emerging economy donors and private development assistance, these norms are only at a nascent stage. Kharas suggest to adopt the "regulation through information" approach, which has been developed and has proven its effectiveness in the case of the European integration. In fact, at the international level, when the enforcement of mandatory rules is difficult, the solution could be to provide and make available transparent, relevant, accurate and reliable information, which can be used to reward or sanction individual aid agencies according to their performances. This means establishing a strong culture of accountability within aid, which rewards aid successes but penalizes failures. To achieve this, literature on the topic suggest that donors should agree on adopting a standardized format for providing information on volume, allocation and results, such as the International Aid Transparency Initiative (IATI), or other similar standards, and commit to improve recipient countries' databases with technical, financial and informational support. The format should be easily downloadable and with sufficient disaggregation to enable comparison with other data. Making aid data public and comparable among donors, would be likely to encourage a process of positive emulation towards a better usage of public funds. After all, official development assistance (ODA) is a voluntary transfer that depends on the support of donor country taxpayers. Donors should therefore consider improving the transparency and traceability of aid funds also as a way of increasing engagement and support toward aid inside their own country. Moreover, a generalized adoption of IATI would ensure the publication of aid information in a timely way, the compatibility with developing countries' budgets and the reliability of future projections, which would have a strong and positive effect on the predictability of aid. Finally, to improve accountability while building evaluation capabilities in aid recipient countries and systematically collecting beneficiaries’ feedback, different mechanisms to evaluate and monitor transparency should be considered, such as independent third-party reviews, peer reviews or mutual reviews.See Droop, J., Isenman, P., and Mlalazi, B., "Mutual accountability in Aid Effectiveness: International-Level Mechanisms", Briefing Note, n.3, Oxford Policy Management, 2008.See also
* Aid for Trade * Development Assistance Committee * Development Assistance Database * Eurodad * G8+5 *References
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