Foreign aid to developing countries is the subject of debate among economists and development specialists. While some argue that aid promotes prosperity and reduces poverty, others assert that it hurts the economy and fosters poverty. Still others argue that aid has little impact one way or another. There is also disagreement about whether or not a nation’s quality of governance affects foreign aid’s impact. Do democratic governments, for example, use aid to promote economic growth more effectively than other forms of government?
In a new book published for IFPRI by the University of Pennsylvania Press, a research fellow at IFPRI provides insight into this heated debate. In Foreign Aid Allocation, Governance, and Economic Growth, Kamiljon Akramov takes the position that aid and its effects are not monolithic but need to be distinguished by their intended ends.
Among the aid types Akramov identifies are economic aid and aid to social sectors such as education or healthcare. Economic aid consists of two major categories: aid to production (agriculture, manufacturing, or mining, for example) and economic infrastructure (such as transport, storage, or communication networks). Using data on official development assistance compiled by the Organisation for Economic Co-operation and Development, he analyzes the impact of economic and social aid on economic growth.
In the book, he determines that economic aid appears to have a positive impact on economic growth by increasing the resources available for investment. By contrast, he finds that aid to social sectors does not seem to have significant impact on human capital—specifically a country’s secondary school enrollment rate.
Akramov’s findings also suggest that the quality of democratic governance, measured by the Freedom House’s political rights and civil liberties indicators, is no guarantee of aid effectiveness in promoting economic growth in aid recipient countries. In fact, economic aid to less-democratic countries can be more effective, at least initially, if this aid is invested in physical means (assets) of production and economic infrastructure.
Akramov’s book has important policy implications concerning trends in donor aid allocation. Aid to production sectors has declined as a percentage of total foreign aid over the past 30 years, falling to less than 10 percent in the 2000s. Promoting growth in developing countries might involve reversing this trend. Most important, his book provides evidence-based research that can inform both sides of the food aid debate.