Comments on "Foreign Aid Effectiveness And Selectivity: New Results" The Massachusetts Avenue Development Seminar (mads)

Comments on "Foreign Aid Effectiveness And Selectivity: New Results"

• The Massachusetts Avenue Development Seminar (MADS)

• Center for Global Development

• Washington, DC

• April 13, 2004

• Nicholas Eberstadt

• Henry Wendt Chair in Political Economy

• American Enterprise Institute

“Selectivity” and Aid, 1984-2002

• There are indeed indications that the relationship between aid absorption and local policy climate in low-income areas has been changing somewhat over time—although not necessarily in the expected directions…

Beyond Policy Climate: Other Possible Criteria and Attendant Indicators For Measuring Aid Effectiveness

• Economic Performance [per capita output, per capita exports]

• Living Standards [per capita output, life expectancy]

• Structural Aid Dependence [ODA/GNI, ODA/exports, ODA/imports, ODA/FDI]

• Admittedly crude indicators—but relatively reliable data (cf. international poverty lines, etc.)

Disaggregating Performance By Region, 1984-2002

• “Low and Middle Income Countries”: World Bank Designation for All Developing Regions

• East Asia

• South Asia

• Latin America and the Caribbean

• Middle East

• Sub-Saharan Africa

• Also, two “special cases” of highly “political” aid: Israel and the Russian Federation

Performance Indicators for Developing World and by Region

• 1984 versus 2002

• (regions listed in descending order of overall performance)

East Asia & Pacific

Israel

Russia

Preliminary Conclusions

• Did the policy climate in recipient low-income areas improve between 1984 and 2002? Very clearly, yes—improvement was marked and general.

• Did aid “selectivity” and aid “effectiveness” contribute positively to this outcome? The answer to this question is not at all self-evident.

• For low-income, aid-receiving areas as a whole, trends were generally positive for economic performance (up), living standards (up), and structural aid dependence (down).

• But performance “story lines” varied tremendously between regions—with the most heavily aid-dependent areas characterized by measured stagnation, or retrogression, in economic performance and living standards.

• How to explain the striking negative association among regions between high aid levels and poor trends in economic performance and living standards: Measurement error? “Neighborhood effects”? Independent influence of structural aid dependence? Some combination? Other factors?

• Perhaps surprisingly, markedly different performance records for highly “political” aid in different settings: the “story line” for Russia looks rather disappointing, while the “story line” appears more promising.