Bilateral and Multilateral Aid: Donor Motivations and Growth and Development Benefits Clement S. Henry Ph.D. Candidate International Relations University of the West Indies Presented at the LIRDS/University Guyana Academic Seminar Theme: Analysing Current Issues in the Changing Hemispheric Environment University of Guyana, 06 November, 2014
Presentation Outline 1. Definition & Rationale 2. History of Foreign Aid 3. Trends in Multilateral and Bilateral Aid 4. Economic Perspectives on Foreign Aid 5. Foreign Aid in International Relations Theory 6. Aid Effectiveness Debate 7. Conclusion & Implication for Policy 2
Definition & Rationale Foreign aid is a form of international cooperation involving the transfer of resources from donor to recipient nations that is generally aimed at promoting economic growth and development (Todaro and Smith 2012, 698; Hess and Ross 1997, 498-499). Aid can take several forms: cash grants, commodity transfers, technical assistance, relief workers and concessional portion of loans. Generally dispensed bilaterally or multilaterally. 3
Definition & Rationale Questions 1.What are the motivations behind aid giving? 2.What factors govern country selectivity? 3.To what extent does foreign aid contribute to economic growth and development? Rationale 1.The Persistence of Aid Programmes despite disappointing results point to other motives beside economic development of recipient states. 2.Apart from Morgenthau s paper on aid few studies incorporating IR Perspective 4
History of Foreign Aid 1. The Marshall Plan -- bilateral assistance from the United States to countries in Europe to aid in their reconstruction after World War II. 2. Multilateral Approach-- setting up of the United Nations and the Bretton Woods institutions 3. Early Post World War II period the North rejected aid as development instrument for the south, promoted private capital instead 4. Institutionalisation of the Cold War resulted in Policy changes first by Russia then by the US and her allies aid was given to the South for geo-political reasons. 5
History of Foreign Aid 1. In addition to geo-political concerns and economic growth poverty reduction emerged as a motive for aid. 2. In the 1980s structural adjustment (Washington Consensus) incorporated in foreign aid practice. 3. 1990s end of Cold War and HIPC programme. 4. Millennium development Goals (MDG) and Rome Declaration on Harmonisation of Aid Practices. 6
Trends in Multilateral and Bilateral Aid: Official development finance to developing countries 7
Trends in Multilateral and Bilateral Aid: Distribution of Multilateral and Bilateral Aid 8
Trends in Multilateral and Bilateral Aid: Gross Disbursement US Millions (2012 Constant Prices) 9
Trends in Multilateral and Bilateral Aid: Gross Disbursement US Millions (2012 Constant Prices)-Bilateral and Multilateral Contributions 10
Trends in Multilateral and Bilateral Aid: Gross Disbursement US Millions (2012 Constant Prices)- IDB Sp. Fund 11
Trends in Multilateral and Bilateral Aid 1. Top Five Bilateral 2010-2012 Annual Average: US (Norway US$24.1M; US$19.7M; Japan US$5.6 M; Canada US$3.5M; and Germany US$2.3M) 2. Top Five Multilateral Donors 2010-2012 Annual Average: IDB Sp. Fund US$57.6M; EU- US$29.1M; Global Fund US$4.6M; UNDP & UNICEF Combined US$1.8M; and IDA US$1.7 12
Economic Perspective on Aid 1. Aid Spurs economic growth and hence development Dual Gap Analysis -- Savings Investment Gap and foreign exchange gap (Both Gaps filled by External Capital) Harrod-Domar Assumption Investment increses growth and I = S + A, where S is domestic saving; and A is foreign savings, i.e. capital inflows. 2. Boast recipient growth and hence trade 13
IR Perspectives Realism- Aid Giving for security/power and influence Liberal Internationalist- Advance democratic regime, international cooperation and humanitarian Constructivism- Identity and Interest 14
Aid Effectiveness Aid not effective in spurring growth (Griffin 1970; Easterly 1999; Boone 1996) Aid effective in creating growth (Chenery and Strout 1966; Papanek ) Aid is effective in the right policy environment Burnside and Dollar (1997; Durbarry et al) 15
Conclusion & Implication for Policy Institutional and policy development to ensure efficient use of resources Transparency in rules and principles Close relationship with Multilateral Partners Improved relations with bilateral partner Long-term development strategy Multilateral aid above bilateral 16