Thursday, June 30, 2005

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Some cautionary notes on aid

Longtime readers of danieldrezner.com -- all seven of you -- are aware of my studied ambivalence about the idea that boosting foreign aid and debt relief to Africa will improve economic conditions in that area.

With the Live8 concert approaching, and the One campaign being hyped by celebrities (including a certain former poli sci student from south of the border), it seems worth pointing out that there's a big difference between wanting to help alleviate poverty and pandemics in Africa and actually doing it.

It's with that frame of mind that I came across this Financial Times story by Andrew Balls:

The International Monetary Fund has warned that governments, donors, campaigners and pop stars need to be far more modest in their claims that increased aid will solve Africa's problems.

Days before the Live-8 concerts around the world, and next week's Group of Eight countries summit in Scotland, the IMF has released two extensive research papers that suggest aid flows to poor countries have not led to higher growth rates, the main driver of poverty reduction.

“We need to be careful given the chequered history of aid, that we do not place more hopes on aid as an instrument of development than it is capable of delivering,” the fund said.

The research, which took into account duration, type of donor and governance record of recipient, found aid did not boost growth.

This conflicts with the findings of an influential World Bank study five years ago that found aid boosted growth in countries with good policy environments.

“The basic message is that it is good that people are talking about increasing aid flows but that we have to find ways to make them more effective. “It is not the case that all that matters is good governance,” said Raghuram Rajan, the fund’s chief economist and co-author of the reports. “We know far less about what makes aid work than the public or governments would like. By acting like we know all the answers raises false expectations.”

Read the whole thing.

Oh, and for conservatives who stress the productive role that remittances can play in fostering economic growth, be sure to click onto this IMF staff paper by Ralph Chami, Connel Fullenkamp, and Samir Jahjah. The abstract:

There is a general presumption in the literature and among policymakers that immigrant remittances play the same role in economic development as foreign direct investment and other capital flows, but this is an open question. We develop a model of remittances based on the economics of the family that implies that remittances are not profit-driven, but are compensatory transfers, and should have a negative correlation with GDP growth. This is in contrast to the positive correlation of profit-driven capital flows with GDP growth. We test this implication of our model using a new panel data set on remittances and find a robust negative correlation between remittances and GDP growth. This indicates that remittances may not be intended to serve as a source of capital for economic development.

[So you're saying the situation is hopeless--ed.] Nope. The FT story goes on to observe:

Separately, the World Bank highlighted improving recent economic performance in Africa. The bank's African Development Indicators showed that since 1995 growth in sub-Saharan Africa has averaged 3.3 per cent per year, compared with 1.7 per cent in the previous decade.

John Page, World Bank chief Africa economist, said: “There is a happy coincidence of the high level of political attention on Africa and more evidence in the data to support hopes of a turning point in Africa now than there has been in the past 20 years.”

Mr Page pointed to greater differentiation in the data. While a number of African countries continue to struggle, 15 countries have grown on average by more than 5 per cent a year over the past decade, including Botswana, Burkina Faso, Ghana, Uganda and Tanzania.

The spread of democracy, the willingness of African governments to take responsibility for promoting growth and development, and reduced impediments to private-sector led growth, and some evidence of better natural resource management has supported growth, the bank said.

“It’s a much more varied picture, it’s not all doom and gloom any longer. Where there has been robust growth there has been poverty reduction and improvements in social indicators,” Mr Page said. “The turnaround story is the most important thing that emerges from the data.”

Click here for the World Bank's press release on its latest Africa report.

posted by Dan on 06.30.05 at 11:02 AM




Comments:

Your position on african aid is quite correct.
It's only a help in the short term. IN the long term, it's far more damaging than even a war would be, in terms of damaging the culture, and thereby the people.

In light of that, a comparison to the welfare state here at home is apt. Indeed, I've always considered such aid to be merely an extension of that disaster.

Even the most socialist guy you knew... JOhn Lennon... didn't think much of it.

-------------->

PLAYBOY: Just to finish your favorite subject, what about the suggestion that the four of you put aside your personal feelings and regroup to give a mammoth concert for charity, some sort of giant benefit?
LENNON: I don't want to have anything to do with benefits. I have been benefited to death.

PLAYBOY: Why?

LENNON: Because they're always rip-offs. I haven't performed for personal gain since 1966, when the Beatles last performed. Every concert since then, Yoko and I did for specific charities, except for a Toronto thing that was a rock-'n'-roll revival. Every one of them was a mess or a rip-off. So now we give money to who we want. You've heard of tithing?

PLAYBOY: That's when you give away a fixed percentage of your income.

LENNON: Right. I am just going to do it privately. I am not going to get locked into that business of saving the world on stage. The show is always a mess and the artist always comes off badly.

PLAYBOY: What about the Bangladesh concert, in which George and other people such as Dylan performed?

LENNON: Bangladesh was caca.

PLAYBOY: You mean because of all the questions that were raised about where the money went?

LENNON: Yeah, right. I can't even talk about it, because it's still a problem. You'll have to check with Mother [Yoko], because she knows the ins and outs of it, I don't. But it's all a rip-off. So forget about it. All of you who are reading this, don't bother sending me all that garbage about, "Just come and save the Indians, come and save the blacks, come and save the war veterans," Anybody I want to save will be helped through our tithing, which is ten percent of whatever we earn.

PLAYBOY: But that doesn't compare with what one promoter, Sid Bernstein, said you could raise by giving a world-wide televised concert -- playing separately, as individuals, or together, as the Beatles. He estimated you could raise over $200,000,000 in one day.

LENNON: That was a commercial for Sid Bernstein written with Jewish schmaltz and showbiz and tears, dropping on one knee. It was Al Jolson. OK. So I don't buy that. OK.

PLAYBOY: But the fact is, $200,000,000 to a poverty-stricken country in South America----

LENNON: Where do people get off saying the Beatles should give $200,000,000 to South America? You know, America has poured billions into places like that. It doesn't mean a damn thing. After they've eaten that meal, then what? It lasts for only a day. After the $200,000,000 is gone, then what?

Africa is a bottomless pit for aid money.... it's just not going to help.

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]



What is the one thing we can do to help Africa and other third world nations? End our farm subsidies.

http://www.reason.com/hod/cpmt061705.shtml

Forget throwing money down a rat hole like Live8. Call your Congressperson and tell them to end the taxpayer giveaway. Also, this could mean the end of Farm Aid. Two birds killed with one stone!

posted by: Don Mynack on 06.30.05 at 11:02 AM [permalink]



Would a Blog Aid concert ruin the blogosphere?

I'm just thinking of a concert to raise funds so bloggers wouldn't have to solicit donations on their sites or cover them with advertising. A Blog Aid (Blogstock?) concert could also raise awareness of bloggers by bringing them on stage to sing. This is impractical with Africa, which is a continent far larger than any stage could accommodate. Besides which almost everyone has some awareness of Africa, from nature documentaries and other sources. On the other hand, I'm told that many Americans are still unaware of what a blog is or how deserving bloggers are.

It's just a thought. As Lincoln might have said if he'd gotten an MBA: "We must think outside the box and act outside the box, and then we shall optimize the prospects for our country's future."

posted by: Zathras on 06.30.05 at 11:02 AM [permalink]



Owen Barder has a good analysis of the IMF papers here, arguing that they're not particularly well-designed and, properly interpreted, may even support the case for aid. There's also a review of the economic literature here which says that the overwhelming weight of evidence points to aid being good for growth and development.

So maybe it's not so implausible that the recent higher growth in Africa has had something to do with the recent higher aid to Africa? Though I would also say that higher prices for their commodity exports has had a lot to do with it too.

posted by: Jim on 06.30.05 at 11:02 AM [permalink]



bithead: IN the long term, [foreign aid]'s far more damaging than even a war would be, in terms of damaging the culture, and thereby the people.

You're an idiot.

posted by: Guy on 06.30.05 at 11:02 AM [permalink]



Hi,

Love your blog's posts!

I just started blogging (http://coasm.blogspot.com/). How do you get those trackbacks to work?

Thanks
Beth
Confessions of a Soccer Mom

posted by: Beth Crowley on 06.30.05 at 11:02 AM [permalink]



There's another issue. The FT report on the IMF papers was in the style "The Fund says that ...." But these were NOT policy documents of the Fund. They weren't even official working papers. It would have been more accurate to say something like "some very clever economists who work for the IMF say that ..." Which is still pretty awkward for them.

posted by: P O'Neill on 06.30.05 at 11:02 AM [permalink]



The Girl in the Café:

The Bush administration has a very strange and mixed record on this issue, I think. Basically, their head is in the right place, even if their heart is not; which is to say, what they have been trying to spend a lot of time focusing on is how to make this money work, so on AIDS, they have actually made an enormous increase in funding and for the most part, it's been wisely done. There are parts of it that you can agree with or disagree with.
On the Millennium Challenge Account, which is the crucial issue, they are absolutely right: The American sort of character, the bad guy in that movie, is actually more right than wrong. You know, people who talk about the need for a Marshall Plan for Africa should remember Africa has received the equivalent of five Marshall Plans in the last 40 years. The question is not entirely one of resources; the question is, how do you disperse them, how do you spend them, how do you make it effective?
The problem the Bush administration has is having come up with a very smart program, the Challenge Account, they simply have not funded it at all. They have promised $5 billion of aid annually to the Millennium Challenge Account. They have dispersed to date, $110 million to--for bizarre reasons--Madagascar. I'm not entirely sure why, but this is the problem. There isn't a real follow-through, and it's simply not true that there aren't enough good projects to fund. Maybe you couldn't get to $5 billion, but you could get to several billion dollars. If you look at what's going on in Tanzania, in Ghana, in South Africa, in Botswana, there are lots of projects you could fund.
forex w/fareed zakaria...

posted by: georgio on 06.30.05 at 11:02 AM [permalink]



The FT report on the IMF papers was in the style "The Fund says that ...." But these were NOT policy documents of the Fund. They weren't even official working papers. It would have been more accurate to say something like "some very clever economists who work for the IMF say that ..." Which is still pretty awkward for them.

posted by: dan on 06.30.05 at 11:02 AM [permalink]



The good news is that the folks really interested in helping, i mean the passionate ones and not the politicians and NGOs looking for their cut, are coming around to the idea that dumping money out of the back of transport planes is a bad idea.

I've read a lot of Geldof and Bono interviews lately, and they seem to have really grown up a lot since the first go round. There is a real air that they have been through the cliques and the beauracracies and now they just want to get the money where it will do the most good. Even if it means reaching out to people like Bush that the usual suspects liken to Satan. It says something that these guys are more interested in doing good than in hating Bush, and thats actually a pretty rare thing on that side of the ledger.

posted by: Mark Buehner on 06.30.05 at 11:02 AM [permalink]



My comment above was incorrect as it was being typed. The aid papers are just out as IMF working papers. With the usual disclaimers: "This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent
those of the IMF or IMF policy."


http://www.imf.org/external/pubs/ft/wp/2005/wp05126.pdf

http://www.imf.org/external/pubs/ft/wp/2005/wp05127.pdf

posted by: P O'Neill on 06.30.05 at 11:02 AM [permalink]



Aid efficacy declines if aid flows are volatile, and star power is unlikely to keep it slow and steady. Aid's effect depends a lot on the shape of the country's financial sector, which is a major reason why debt forgiveness doesn't always help. But you can separate the question of celebrity campaigns from the question of how to make aid work. It doesn't all come down to those damn hopeless shiftless wogs, either.

So yeah, what Guy said, sigh.

posted by: psh on 06.30.05 at 11:02 AM [permalink]



someone needs to explain to me how giving everyone in America a $300 tax refund stimulates economic growth, but giving everyone in Botswana $300 won't stimulate economic growth.

posted by: p.lukasiak on 06.30.05 at 11:02 AM [permalink]



You're an idiot

Tell me, what has all the aid we've dumped into such places accomplished, in the long term. Other, of course than establishing a serious dependancy on such aid... and the establishment of despots whose popularity is directly tied to the lopsided distribution of such aid.


Think you that 'Oil For Food' is the only international aid program to be fouled by such people?


someone needs to explain to me how giving everyone in America a $300 tax refund stimulates economic growth, but giving everyone in Botswana $300 won't stimulate economic growth.

Because there is a completely different economic situation here in the 'states, which is perhaps best expressed as trying to grow corn in the desert, versus growing it in Iowa. The growth is not totally dependant on the artificial conditions, and thereby the corn doesn't die once you take away the artificial watering.

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]



You're an idiot

Tell me, what has all the aid we've dumped into such places accomplished, in the long term. Other, of course than establishing a serious dependancy on such aid... and the establishment of despots whose popularity is directly tied to the lopsided distribution of such aid.


Think you that 'Oil For Food' is the only international aid program to be fouled by such people?


someone needs to explain to me how giving everyone in America a $300 tax refund stimulates economic growth, but giving everyone in Botswana $300 won't stimulate economic growth.

Because there is a completely different economic situation here in the 'states, which is perhaps best expressed as trying to grow corn in the desert, versus growing it in Iowa. The growth is not totally dependant on the artificial conditions, and thereby the corn doesn't die once you take away the artificial watering.

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]



You're an idiot

Tell me, what has all the aid we've dumped into such places accomplished, in the long term. Other, of course than establishing a serious dependancy on such aid... and the establishment of despots whose popularity is directly tied to the lopsided distribution of such aid.


Think you that 'Oil For Food' is the only international aid program to be fouled by such people?


someone needs to explain to me how giving everyone in America a $300 tax refund stimulates economic growth, but giving everyone in Botswana $300 won't stimulate economic growth.

Because there is a completely different economic situation here in the 'states, which is perhaps best expressed as trying to grow corn in the desert, versus growing it in Iowa. The growth is not totally dependant on the artificial conditions, and thereby the corn doesn't die once you take away the artificial watering.

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]



That settles it then. You can't dispute the logic of a washed-up Internet plumber armed with facts from a semen-crusted back issue of Playboy.

posted by: psh on 06.30.05 at 11:02 AM [permalink]



c=8
(emoticon meaning: your blanket statements evince what might be termed naivete in that, first of all, you fail to distinguish between relief aid and development aid; also between aid for stabilization and aid for growth; also between commodity exporters subject to demand shocks and commodity exporters subject to supply shocks; for not all stinking third-world hellholes are alike, you see; so evidently your primary experience as an Africa hand was that time Miss April was a black girl.)

posted by: psh on 06.30.05 at 11:02 AM [permalink]



Hello. As an African gentleman from the small impoverished nation of Faloofa, perhaps I may be permitted to contribute some perspective on the here divergence of opinions.

Our nation owes an undying debt of gratitude to Mister Bithead, who came to us as a Christian missionary years ago. He lived with us as part of our clan, sharing our communal meals of boiled dirt, fried dirt, baked dirt and dirt fritters. He came to us shortly after the great genocidal war of all against all in which we deposed and exiled the maniacal warlord Barak Obama. He remained with us through the great hemorrhagic fever pandemic which we remember as Ugga bugga, the river of blood. He helped us cope with the six-year drought, the Ugga bugga, or flight of the skywater. Then his spiritual counsel succored us through the great infestation of locusts, the Ugga bugga or tiny crispy flying morsels.

Although we still face many challenges including pagan superstition, mass mayhem, promiscuous dry sex, child labor, female genital mutilation, virulent tropical diseases, tardy adoption of metallurgical technology, and gay marriage, we are an optimistic race. In the language of my people we have a saying, Ugga bugga. It means "Oh well, I can always wrench a cup of powdered milk from the grasp of an AIDS orphan." And so it has turned out. Now I am able to sustain my family by making decorative handicrafts of human bones and teeth. God is indeed great.

posted by: Methuselah Bwmalakalakalake on 06.30.05 at 11:02 AM [permalink]



Sorry for the multiples, Dan... your DB engine choked, loos to me.

As for the rest... seems to me all money does is reinforce the cultural problems this last writer shows us so clearly. Which is exactly what occurred here in America under the welfare state.


And of course, in both cases, it's also connected to the hangers on, whose power is directly related to how much tax money is tossed at such. IN the case of the US, we end up with the race warlords... the amount of milage they get out of this is staggering... which is amazing on it's face, given that even in the heyday of the welfare state, the vast majority of people on welfare were WHITE... and yet any cut on the amount of money being spent on welfare was seen as a racist attack on BLACKS. A lotta folks made a lot of good money off selling that line. Go figure.

In the case of places we're 'aiding', it simply reinforces bad governments.

In both cases, the very suffering we're attempting to lessen, lasts longer and is stronger, instead. Every place we've given such moneies, the problems we're trying to fix, get worse in the long term.

It's really that simple.
And by the way; race doesn't have a damned thing to do with it.

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]



All
Joyner, this morning, posts some comments from Kenyan economist, James Shikwati, which are directly connected to this subject, and which bear out my own comments... here's a taste:

>>>>>>>>>>\
SPIEGEL: Even in a country like Kenya, people are starving to death each year. Someone has got to help them.

Shikwati: But it has to be the Kenyans themselves who help these people. When there's a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help. This call then reaches the United Nations World Food Program -- which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated. It's only natural that they willingly accept the plea for more help. And it's not uncommon that they demand a little more money than the respective African government originally requested. They then forward that request to their headquarters, and before long, several thousands tons of corn are shipped to Africa ...

posted by: Bithead on 06.30.05 at 11:02 AM [permalink]






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