Do you support tied aid?

If you support tied aid as a suitable motivation for aid, please sit on the LEFT (facing the screen)

If you DO NOT support tied aid as a suitable motivation for aid, please sit on the RIGHT (facing the screen)

Economic Development and Technology

Nisha Maharaja, Rosalind Rashidin, Emily Rentschler, Hayden Tang

What is Tied Aid?

• Goods & services must be provided directly by the donor country – example is that firms from donor countries are hired to undertake aid projects (construction)

Pros? Cons?

What is Tied Aid?

• Goods & services must be provided directly by the donor country – example is that firms from donor countries are hired to undertake aid projects (construction)

Pro

• Creates value for both the donor & the recipient

• Economical benefits, creates jobs & exports

• Incentive to increase aid spending

• Informal typing exists anyways

Con

• Inefficient aid channel that reduces value for recipients

• Overpricing of goods and services

• Does not strengthen recipient markets or provide jobs in recipient countries

Tied Aid on a Global Scale

Source: The extend and effects of tied aid, Hannes Ryden 2009

Tied Aid on a Global Scale

Source: The extend and effects of tied aid, Hannes Ryden 2009

History of Tied Aid

Source: How tied aid affects the cost of aid-funded projects in Ghana, Barfour Osei, 2003

• Average price of goods finance by aid exceeds world market prices by 25-30% (Hayer and Watson, 1985)

• Price premiums estimated to be between 20-30% on imports of iron and steal products of some African countries from France (Yeats, 1990)

• Other literature are more conservative, estimating 10-15% higher prices than competitive world prices

Tied Aid on a Global Scale

Source: The extend and effects of tied aid, Hannes Ryden 2009

Tied Aid – United States

• Largest bilateral donor, with approximately $53 billion: $38 billion in economic assistance and $15 billion in military assistance in 2010

• The $38 billion in obligated U.S. economic assistance went to 182 countries. Afghanistan received the most, approximately $5 billion, while Iceland received the least, just $83.

Source: http://gbk.eads.usaidallnet.gov/data/fast-facts.html

Factors affecting Tied & Untied Aid

“For tied aid, significant determinants are population and initial GDP of the recipient. Poorer and more populated countries are more likely to receive greater amounts of tied aid, while more socially stable countries are more likely to receive greater amounts of untied aid.”

Source: Aid Effectiveness: A comparison of Tied and Untied Aid, Josepa M. Miquel, 2007

Tied aid in Ghana

• Sixth Power Project, part of Volta River Project in Ghana• Aims to maintain realiability of Ghana’s electricity supply, explore

power generation, meet demand for electricity in 2000• Cost roughly US $174 million, of which 88% was paid for by a

consortium of external donors • Project phases involved providing technical support, equipment

and spares from donor sources and tying process restricted use of any other products

• Study by African Economic Research Consortium in 2003 analyzes the question – whether tied aid bears additional financial cost owing to the price mark-up generated.

Source: How tied aid affects the cost of aid-funded projects in Ghana, Barfour Osei, 2003

What do you think happened?

• Was tied aid much more costly?• Is this a necessary cost – do you think Ghana could have received

untied aid for this project?• Is this aid sustainable?• What alternatives would Ghana have?

Source: How tied aid affects the cost of aid-funded projects in Ghana, Barfour Osei, 2003

Tied aid in Ghana: Conclusion

• Tied foreign aid bear significant additional costs owing to price mark-up.

• “Finally, although the higher cost of funded inputs may be a necessary price Ghana has to pay to receive aid, since, arguably, higher cost tied aid may be better than no aid, the evidence of higher prices on funded inputs provides a case for the cancellation of Ghana’s aid debt.”

Source: How tied aid affects the cost of aid-funded projects in Ghana, Barfour Osei, 2003

Can aid be altruistically motivated on a national level?

Can aid be altruistically motivated on a national level?

From When is Foreign Aid Policy Credible? – Jakob Svensson, World Bank 1997:• One reason for foreign aid’s poor overall record may be a moral hazard problem: That donors want to

donate to the most in need, and since there is a limit to the amount of aid, recipients have little incentive to improve the welfare of the poor

• Originally viewed tied aid as only a method to increase the commercial impact of the aid project• However, given that tied aid is contractible, it serves a purpose to monitor the impact of the aid through

legal institutions incentivized to enforce the contract for profit-maximizing reasons• Concept of “Adjustment Effort” – The amount the recipient spends on economic development, is it

observable? Can the Donor commit?

Donors RecipientsGive to most in need

Do I want to spend more because I will then get less aid?

Trends in Technology and International Development

- Information and knowledge are engine of economies

- Developing countries follow own growth trajectory

- Goals of Development have reached beyond economic

The Internet has been a relatively recent developed technological tool. What do you feel are the advantages that the internet has provided to both developing and developed nations?

Internet and Development

Internet and six key areas in Development:

• Economic Productivity

• Health

• Education

• Poverty Alleviation and Empowerment

• Democracy

• Sustainable Development

Economic Development

- Internet enable companies to advertise worldwide

• India

• Argentina

- More research is needed on internet and economy

Health

- Healthcare websites

• Healthnet

• Africa

Education

- Institution increase in research

- Primary and Secondary Schools

• Cuba

• Chile

- Distance Learning

Poverty Alleviation and Empowerment

- Direct communication between countries and NGO’s

- Internet used to create IT jobs for rural poor• India• Bangladesh

Democracy

- Expression of open thoughts

Sustainable Development

- Promotion of Global Policy

- Awareness

It's All Relative

Millennium Development Goals

"Eradicating extreme poverty continues to be one of the main challenges of our time, and is a major concern of the international community. Ending this scourge will require the combined efforts of all, governments, civil society organizations and the private sector, in the context of a stronger and more effective global partnership for development. The Millennium Development Goals set timebound targets, by which progress in reducing income poverty, hunger, disease, lack of adequate shelter and exclusion — while promoting gender equality, health, education and environmental sustainability — can be measured. They also embody basic human rights — the rights of each person on the planet to health, education, shelter and security. The Goals are ambitious but feasible and, together with the comprehensive United Nations development agenda, set the course for the world’s efforts to alleviate extreme poverty by 2015. "

United Nations Secretary-General BAN Ki-moonwww.un.org/millenniumgoals/bkgd.shtml

http://www.un.org/en/mdg/summit2010/successstories.shtml

MDGs: They all support economic development

Eradicate Extreme

Poverty and Hunger

Achieve Universal Primary

Education Promote Gender Equality

and Empower Women

Reduce Child

Mortality

Improve Maternal

Health

Combat HIV/AIDS and other Diseases

Economic Development

Ensure Environmental Sustainability

Develop a Global

Partnership for

Development

Afghanistan and Laos

http://content.undp.org/go/newsroom/2010/june/20100602-laos-localisation.en?categoryID=349423&lang=en

District Development Fund

• Markets constructed• Farms connected to markets, via new roads• Schools built• Districts have direct planning and spending

power

Results

• Saravane District – 27 to 2 “poor” villages• Poverty – decreased from 46-26.9%• National socio-economic plan developed• Decentralized development

Problems farmers are facing

• No access to the latest agriculture initiatives• Located too far from schools• Underdeveloped extension services• Lack of support for agricultural universities

Solutions

• Rural Development• ICT (mobile phones) to improve extension

services• ICT to connect agriculture schools in different

cities to prevent “inbreeding”• District Development Fund

Does Aid Keep Countries from Developing their own Economies?

http://www.one.org/livingproof/en/story/living-proof-presentation/

Does Aid Keep Countries from Developing their own Economies?

http://www.one.org/livingproof/en/story/living-proof-presentation/

World Development Report 2013:Jobs

World Bank. 2012. World Development Report 2013: Jobs. Washington, DC: World Bank. DOI:10.1596/978-0-8213-9575-2.

World Bank. 2012. World Development Report 2013: Jobs. Washington, DC: World Bank. DOI:10.1596/978-0-8213-9575-2.

World Development Report 2013:Jobs

World Bank. 2012. World Development Report 2013: Jobs. Washington, DC: World Bank. DOI:10.1596/978-0-8213-9575-2.

World Development Report 2013:Jobs

Definition of SMEs - World Bank

Broadband-Driven Information Technologies: SMEs Opportunities in Supporting Business Needs

Mobile technologies provide remote and temporary collaboration and communication capabilities:

• anytime, anywhere voice, data, and services access.

• encompass software applications, supporting networks, and hardware

Fixed broadband Internet Subscribers (per 100 people)World Bank Data 2012

Technology in SMEs

Critical technologies for high tech SMEs growth in the U.S.Source: www.springer.com/cda/.../cda.../9781461430391-c1.pdf?

Mobile Opportunities in SMEs Value Chain

• Mobile Workers - remotely access resources, extending their connectivity and reach

• Edgy Enterprises - focusing on the exploitation of supplier/partner/customer relationships

• Across Industries - agriculture, education

• Communities - social networking, e.g. MXit an instant messaging application that gained market shares in over 120 countries with 19 million subscribers.

World Bank Data

Mobile Cellular Subscriptions (per 100 people)

World Bank Data 2012

Mobile Technologies

Mobil

Mobile technologies landscape.

(Source: Passerini, updated and reprinted with permission of Cutter Consortium, www.cutter.com

Challenges

• Security - information: vulnerability of connection and additional disclosure of location-based data

• Privacy - broadband supported applications tend to be invasive of privacy: users need to disclose information about themselves, their preferences, and their location

• Interoperability