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The Effectiveness of Aid to Development. Focus on the Aid-Growth literature.

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par François Defourny
Facultés N-D de la Paix de Namur - Université Catholique de Louvain - Master in International and Development Economics 2005

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The objectives of aid to development

The concept of international assistance appeared in the 19th century but the real expansion of foreign aid to development started with the launch of the Marshall plan and the creation of the Bretton Woods institutions in the aftermath of World War II. Since then, the history of international cooperation has been largely influenced by the evolution of geopolitics and development thinking.1 Initially widely considered as a weapon against the soviet influence the objectives of foreign aid took various directions following the donors and their motivations. Hence, aid has been attributed for many different purposes and in many different forms. Even if we stick to official objectives of bilateral development agencies, they appear to be very diverse.2 They go from self-sustaining growth to poverty reduction through good governance. But the variety gets even larger as we consider donor's real intentions. Amongst

1 See Kanbur (2003 p 4-9)

2 See Lensink and White (1999, p 15-16)

the latter, some are hardly avowable3. As Boone (1996, p306) writes: «Despite the popular belief that aid is primarily motivated to assist the poor, substantial evidence points to political, strategic, and welfare interests of donor countries as the driving force behind programs.»

For Alesina and Dollar (1998), there is general agreement about what matters for aid allocation, namely poverty of the recipients, strategic interests, colonial history, trade, political institutions, etc. But the dominant variable can be very different from a country to another. After looking at several studies analysing the determinants of foreign aid, Boone (1996) concludes that aid flows primarily reflect donor's interest rather than recipient needs. In this sense, Alesina and Dollar (2000) find evidences that assistance allocation was essentially dictated by political and strategic consideration much more than by economic needs and policy performance of the recipients. In a more recent study, Berthelemy (2004) find that the vast majority of donors behave in a rather selfish way.

3. Aid effectiveness

The question of whether aid globally works or not has always been highly controversial and the debate is constantly and rapidly evolving. The diversity of goals, donors and types of aids makes the concept of «aid effectiveness» quite unclear. In consequence, the efficiency of aid has been approached from different methodological and ideological point of views. Some studies have concluded that aid was only able to increase bureaucracy, enlarge inequalities or develop corruption. On the other hand, many economists have argued that growth would have been lower and poverty worse without international assistance.

As well mentioned by Kanbur (2000, p15): «Given the great ideological divides in development doctrines and in aid policy, and given the ambiguities in the theoretical analysis of the impact of aid [...] empirical literature on aid evaluation has taken on special significance.» This empirical literature can roughly be divided in two main streams. The first one investigates the effects of foreign aid on receiving countries. The other one studies the determinants of foreign aid allocation and the behaviour of donor agencies. Both have led to

3 Hjertholm and White (2000, p81) attempt to synthesize the core evolution of aid throughout the last decades. But their schematic synthesis does not reflect the large diversity of objectives going form very altruistic behaviour to perfectly selfish interests.

numerous analysis and fierce debates. However, for the purpose of this work, we will essentially focus on the first part of this literature.

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