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Chapter18 20Aid-10

Chapter18 20Aid-10 - de Janvry Roland-Holst and Sadoulet...

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de Janvry, Roland-Holst, and Sadoulet 1 Chapter 18 Development Aid and its Effectiveness Revised November 29, 2010 1. Overview Foreign aid is a primary means by which MDCs have attempted to promote economic development in LDCs. Sums spent in Overseas Development Assistance (ODA) have been considerable, amounting to 3 trillion US$ since 1970. Over the last five decades, development aid has evolved in response to a dramatically changing global political and economic landscape. In this chapter, we examine this evolution and discuss how the effectiveness of aid has been and will be seen in the eyes of donors, intended beneficiaries, and outside observers. We shall see that the heterogeneity of means, needs, and actors make aid an extremely complex behavioral universe. Moreover, complexity of the underlying economies makes it difficult to assess the causal links between aid and its objectives. As a consequence, the effectiveness of aid in promoting development is often uncertain and controversial, and opinions about it deeply ideological. For that reason, there are on-going heated controversies about how best to provide foreign aid, with protagonists such as Jeffrey Sachs (2005), William Easterly (2006), and Paul Collier (2007) taking sharply contrasted positions that we will review. There are also important new players in foreign aid such as well endowed philanthropic organizations like the Bill and Melinda Gates Foundation, the private sector pursuing corporate social responsibility, and developing country South-South aid initiatives such as the Chinese in Africa and Brazil in tropical agriculture. We begin with a historical survey of aid, which will also introduce many basic aid related concepts (in italics). With this background, we go on to discuss aid effectiveness and assessments of aid impacts. 2. History Economic development since the middle of the last century has been spectacular. There are many encouraging examples of development successes, yet there is also evidence of widening Take home messages for chapter 18 1. Current development aid is the outcome of a long historical process, but its main characteristics evolved from Post-WWII reconstruction assistance to Europe under the Marshall Plan. 2. In today’s global economy, aid appears to be experiencing diminishing returns in terms of macroeconomic growth and in any case is competing with dramatic growth in private capital flows associated with foreign direct investment. 3. There are sharp controversies about the effectiveness of foreign aid, ranging from strong advocates such as Sachs, to deep skeptics such as Easterly, and to pragmatics such as Collier. There are also sharp controversies about how to best administer aid, ranging from a strong role for the state to reliance on NGOs and local “searchers”.
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