University of Antwerp The history of development cooperation Hasselt University Interdisciplinary Course North-South Crossing borders 16 February 2011

University of Antwerp

The history of development cooperation

Hasselt University Interdisciplinary Course North-South

Crossing borders

16 February 2011

Robrecht Renard


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Outline

1. The history of aid: the money 2. The history of aid: the ideas3. Too many aid deliverers4. Donor collective action problems5. Conclusion


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ODA in value and as share of GNI

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

bil

lio

n U

S $

(20

08 c

on

stan

t p

rice

s)

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

as p

erce

nta

ge

of

do

no

r G

NI

value (left axis) share of GNI (right axis)

Post-colonial adjustment

Stalled promise yet steady increase in volumes

Aid fatigue

New found optimism?


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2. The history of aid: the ideas

period preferred aid modality

major constraint addressed

donor attitude to partner government

1960-1980

projects - physical capital- human capital

bypass

1980-2000

policy based support

- macroeconomic policies

bully

2000- budget support

- ownership- governance- good donorship

engage

7


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1. Ownership1. Ownership(Partner country)(Partner country)

mutual accountability

Results oriented management

Results oriented management

2. Alignment2. Alignment(Donor-Partner)(Donor-Partner) Aligning with

partner’s agenda

Partner sets the agenda

Using partner systems

Establishing common

arrangements

Simplifying procedures Sharing information

3. Harmonisation3. Harmonisation(Donor-Donor)(Donor-Donor)

The 2005 Paris declaration


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taxes

ODA budget

3. Too many aid deliverers


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taxes

ODA budget

bilateral aid multilateral aid



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taxes private donations

ODA budget

bilateral aid

private aid

multilateral aid



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capital market

ODA budget

bilateral aid

private aid

multilateral aid



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capital market

ODA budget

bilateral aid

private aid

multilateral aid


Sources of aidSources of aid

Deliverers of aidDeliverers of aid


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4. Donor collective action problems

• Excessive number of aid deliverers – signals a failure to collaborate– problem aggravated by what follows:

• Principal-agent relationship• Samaritan’s dilemma• Warm glow effects• Missing feedback loops• Donors in pursuit of too many goals


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Me principal, you agent

• Recipient governments often are not pursuing development in their countries– this is not a question of individual morality– but a question of institutional incentives

• Aid is more and more being directed towards countries that are badly governed– well-governed countries manage well without aid

• Principal-agent theory– requires strong principal who can sanction the agent– but aid sanctions do not hurt the right people


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The Samaritan’s Dilemma (J. Buchanan)

Recipient

High Effort Low Effort

Samaritan

No Help 2,2 1,1

Help 4,3 3,4


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Samaritan dilemma

• If Samaritan is strongly motivated to help, recipient is in the more powerful position, and bad Nash equilibrium results– governments receiving food aid disregard agriculture– villagers do not maintain donor-funded infrastructure

• Through a credible strategy of withdrawal (conditionality), a tough Samaritan may avoid the bad equilibrium occurring

• Another effective strategy for the smart Samaritan may be to organize aid tournaments (selectivity)


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Warm glow

• People feel good simply from the act of giving, irrespective of the results obtained– not to be confused with altruism

• Although warm glow is a powerful incentive for international solidarity, it can hamper collective action– donors prefer tangible (photographs) and ‘attributable’

results (projects), even if this contributes to donor fragmentation

– Northern citizens bypass intermediaries (NGOs) in order to increase the warm glow, even if this reduces effectiveness (transaction costs for delivery and supervision)


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Missing feedback loop

• Makes public opinion easily manipulated• Gives undue importance to pressure groups

– NGOs– universities– private sector (aid tying)

• Suggests an increased role for Parliament– provided it is better informed than public opinion– provided it does not only listen to pressure groups


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Donors in pursuit of too many goals

• Development– technocratic: econonomic growth, health, education,…– political: democracy

• Global public goods – climate change– distress migration– drug trafficking– contagious diseases

• Non-developmental selfish donor interests– commercial interests (aid tying)– geo-political interests– security interests


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Direct effects

Donor managed project aid

• productivity of the project itself

Budget support

• general productivity of the public sector


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Direct effects Indirect effects



• know-how transfer• pilot function

• transaction costs• weakening of public sector (donor-driven priority setting, poaching of recurrent resources and staff)

Budget support


• strengthening of the public sector (TA, policy dialogue, conditionalities)


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Direct effects Indirect effects



• know-how transfer• pilot function

• transaction costs• weakening of public sector (donor-driven priority setting, poaching of recurrent resources and staff)

Budget support


• strengthening of the public sector (TA, policy dialogue, conditionalities)


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Conclusions

• High hopes of the aid approach that is advocated in the 2005 Paris Declaration are not being fulfilled – good principles– but naïve about incentives of major actors

• But there is no brilliant new aid paradigm looming over the horizon– this is still the best game in town


Thank you

[email protected] http://www.ua.ac.be/dev/bos

Documents

University of Antwerp The history of development cooperation Hasselt University Interdisciplinary Course North-South Crossing borders 16 February 2011