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Comments on "Foreign Aid Effectiveness
And Selectivity: New Results"
The Massachusetts Avenue Development Seminar (MADS)Center for Global Development
Washington, DCApril 13, 2004
Nicholas EberstadtHenry Wendt Chair in Political Economy
American Enterprise Institute<eberstadt@aei.org>
“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…
Sources: The World Bank, World Development Indicators 2003 CD-ROMGwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
ODA as Percent GNI vs. Economic Freedom Rating, 1985
y = -1.0891x + 11.314 (-1.49) (3.01)
R2 = 0.0426n = 50
0
10
20
30
40
0 5 10
Economic Freedom Rating
OD
A a
s P
erce
nt
GN
I
1985
Linear(1985)
Sources: The World Bank, World Development Indicators 2003 CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
ODA as Percent GNI vs. Economic Freedom Rating, 2001
y = -3.0479x + 24.24 (-2.52) (3.32)
R2 = 0.1076n = 55
0
10
20
30
40
50
0 5 10
Economic Freedom Rating
OD
A a
s P
erce
nt
GN
I 2001
Linear(2001)
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
Note: Constant 1995 US DollarsSource: The World Bank, World Development Indicators 2003 CD-ROM
GDP Per Capita, 1984-2002Relatively Successful Economies
100
1000
10000
100000
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
GD
P Pe
r Cap
ita
East Asia &Pacific
Israel
Latin America &Caribbean
Low & middleincome
South Asia
GDP Per Capita, 1984-2002 Less Successful Economies
0
500
1000
1500
2000
2500
3000
3500
Year
GD
P P
er C
apit
a
Middle East
Russia
Sub-Saharan Africa
Note: Constant 1995 US DollarsSource: The World Bank, World Development Indicators 2003 CD-ROM
Note: Series adjusted to 2002 US Dollars by PPI deflatorSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002
(Paris :OECD, 2004); idem., International Development Statistics, 2002. CD-ROM
Net ODA, 2002 DollarsRelatively Successful Economies
100
1000
10000
100000
Year
Net
OD
A
East Asia
Israel
LatinAmerica/Caribbean
Low Middle Income
South Asia
Net ODA, 2002 DollarsLess Successful Economies
0
5000
10000
15000
20000
25000
Year
Net
OD
A
Middle East
Russia
Sub-Saharan Africa
Note: Series adjusted to 2002 US Dollars by PPI deflatorSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002
(Paris :OECD, 2004); idem., International Development Statistics, 2002. CD-ROM
Exports per Capita, 1984-2001
Source: The World Bank, World Development Indicators 2003. CD-ROM
Exports Per Capita, 2002 DollarsRelatively Successful Economies
10
100
1000
10000
Year
Exp
ort
s P
er C
apita
East Asia & Pacif ic
Low & middle income
South Asia
Latin America &Caribbean
Israel
Exports Per Capita, 2002 DollarsLess Successful Economies
0100200300400500600700800900
Year
Exp
ort
s P
er C
apita
Middle East
Russia
Sub-Saharan Africa
Source: The World Bank, World Development Indicators 2003. CD-ROM
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) The World Bank, World Development Indicators 2003. CD-ROM
ODA as a Percentage of Exports,Relatively Successful Economies
0%
5%
10%
15%
20%
25%
Year
Perc
enta
ge o
f Exp
orts
East Asia
Israel
Latin America& CaribLow MiddleIncomeSouth Asia
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROM
ODA as a Percentage of ExportsLess Successful Economies
0%
5%
10%
15%
20%
25%
30%
Year
Per
cen
tag
e o
f Exp
ort
s
Middle East
Russia
Sub-SaharanAfrica
Source: The World Bank, World Development Indicators 2003. CD-ROM
ODA as Percentage of ImportsRelatively Successful Economies
0
5
10
15
20
Year
Per
cent
age
of Im
port
s
East Asia &P acific
Israel
Latin America &Caribbean
Low & middleincome
South Asia
ODA as a Percentage of ImportsLess Successful Economies
0
5
10
15
20
25
Year
Per
cen
tag
e o
f Im
po
rts
Middle East
Russia
Sub-SaharanAfrica
Source: The World Bank, World Development Indicators 2003. CD-ROM
FDI as Percentage of ODA, 1984-2001
FDI as a Percentage of ODARelatively Successful Economies
0%
500%
1000%
1500%
2000%
Year
Per
cen
tag
e o
f OD
A
East Asia &Pacific
Israel
Latin America &Carib
Low MiddleIncome
South Asia
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROM
FDI as a Percentage of ODALess Successful Economies
-20%
80%
180%
280%
380%
Year
Perc
enta
ge o
f OD
A
Middle East
Russia
Sub-Saharan Africa
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROM
Performance Indicators for Developing World and by Region
1984 versus 2002
(regions listed in descending order of overall performance)
Low/Middle Income Countriesc. 1984 c. 2002
GDP Per Capita (1995 $) 972 1279
Life Expectancy at Birth 62 65
Per Capita Exports (2002 $) 185 352
ODA as a Percentage of GNI 1.0% 0.9%
ODA as a Percentage of Exports 5.6% 1.7%
ODA as a Percentage of Imports 4.5% 2.9%
FDI as a Percentage of ODA 47% 279%
Average Economic Freedom Rating 4.6 6.1
Total ODA 1984-2002 (2002 $) 1.2 trillionSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)
OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
East Asia & Pacificc. 1984 c. 2002
GDP Per Capita (1995 $) 367 1048
Life Expectancy at Birth 66 69
Per Capita Exports (2002 $) 81 332
ODA as a Percentage of GNI 0.7% 0.5%
ODA as a Percentage of Exports 3.3% 1.1%
ODA as a Percentage of Imports 3.7% 1.2%
FDI as a Percentage of ODA 99% 751%
Average Economic Freedom Rating 6.1 6.8
Total ODA 1984-2002 (2002 $) 141 billion
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROMGwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
South Asiac. 1984 c. 2002
GDP Per Capita (1995 $) 270 486
Life Expectancy at Birth 56 63
Per Capita Exports (2002 $) 28 66
ODA as a Percentage of GNI 1.5% 1.0%
ODA as a Percentage of Exports 21.9% 9.4%
ODA as a Percentage of Imports 13.1% 5.1%
FDI as a Percentage of ODA 2% 47%
Average Economic Freedom Rating 4.6 5.8
Total ODA 1984-2002 (2002 $) 139 billionSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)
OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
Israel c. 1992 c. 2002
GDP Per Capita (1995 $) 14,259 17,068
Life Expectancy at Birth 76 79
Per Capita Exports (2002 $) 4383 6611
ODA as a Percentage of GNI 3.2% 0.8%
ODA as a Percentage of Exports 10.6% 1.9%
ODA as a Percentage of Imports 7.5% 0.3%
FDI as a Percentage of ODA 29% 428%
Economic Freedom Rating 4.2 6.5
Total ODA 1984-2002 (2002 $) 29 billionSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)
OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
Latin America & the Caribbeanc. 1984 c. 2002
GDP Per Capita (1995 $) 3391 4052
Life Expectancy at Birth 66 71
Per Capita Exports (2002 $) 423 771
ODA as a Percentage of GNI 0.5% 0.3%
ODA as a Percentage of Exports 2.1% 1.3%
ODA as a Percentage of Imports 2.1% 1.2%
FDI as a Percentage of ODA 162% 1356%
Average Economic Freedom Rating 4.3 6.4
Total ODA 1984-2002 (2002 $) 101 billionSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)
OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
Middle Eastc. 1984 c. 2002
GDP Per Capita (1995 $) 1843 1988
Life Expectancy at Birth 62 69
Per Capita Exports (2002 $) 728 672
ODA as a Percentage of GNI N/A 0.7%
ODA as a Percentage of Exports 3.3% 1.7%
ODA as a Percentage of Imports 3.0% 2.7%
FDI as a Percentage of ODA 172% 164%
Average Economic Freedom Rating 5.2 6.3
Total ODA 1984-2002 (2002 $) 74 billion
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROMGwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
Russiac. 1992 c. 2002
GDP Per Capita (1995 $) 2967 2609
Life Expectancy at Birth 67 66
Per Capita Exports (2002 $) 570 776
ODA as a Percentage of GNI 0.5% 0.4%
ODA as a Percentage of Exports 6.2% 1.2%
ODA as a Percentage of Imports 2.6% 1.3%
FDI as a Percentage of ODA 15% 190%
Economic Freedom Rating 4.1 5.0
Total ODA 1992-2002 (2002 $) 50 billionSources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)
OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM
Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
Sub-Saharan Africac. 1984 c. 2002
GDP Per Capita (1995 $) 621 575
Life Expectancy at Birth 49 46
Per Capita Exports (2002 $) 188 168
ODA as a Percentage of GNI 4.9% 4.6%
ODA as a Percentage of Exports 12.9% 16.4%
ODA as a Percentage of Imports 12.2% 11.0%
FDI as a Percentage of ODA 13% 74%
Average Economic Freedom Rating 4.5 5.7
Total ODA 1984-2002 (2002 $) 319 billion
Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004)OECD, International Development Statistics, 2002. CD-ROM
The World Bank, World Development Indicators 2003. CD-ROMGwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual ReportThe Fraser Institute, 2003.
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.
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