Development assistance and development finance: evidence and global policy agendas

Abstract

Understanding the development effects of official aid is crucial to building a better bridge between research and policy. This paper reviews the current evidence regarding the impact of aid on growth and poverty reduction, and develops a new narrative. In the light of this narrative, the paper then examines aid trends, focusing on the regions of sub-Saharan Africa and the Pacific. The paper then turns to recent discussion of new and innovative sources of development finance and considers how research has influenced the policy debate through a recent UNU-WIDER study for the UN General Assembly. The paper concludes that aid broadly works, that poverty would be higher in the absence of aid, and that the shortfall in aid during the 1990s has, by implication, made it more difficult to meet the Millennium Development Goals. Hence, a considerable catch-up in aid and other development finance flows is now necessary if poverty is to be substantially reduced by 2015.

Foreign aid and governance in Africa

“…While development assistance has a bearing on the development of the recipient country (Addison et al, 2005;Fielding et al, 2006), the reversed effect cannot be ruled-out as aid from donor agencies (countries) is contingent on institutional and developmental characteristics.…”

Foreign Aid Fiscal Policy: Theory and Evidence

“…Whereas the effect of development assistance is more straight forward to some scholars (Ishfaq, 2004;Addison et al, 2005;Fielding et al, 2006) 8 , its impact on development outcomes may also be indirect. We have highlighted in one of the strands above that aid promotes unsound public consumption (Mosley et al, 1992) without a positive effect on investment.…”

“…Accordingly, the underlying assumption 7 The narrative of Kuada (2015) on soft economics for employment, poverty alleviation and inclusive growth in Africa is substantiated by a recent stream of African development literature that has focused on mechanisms by which foreign aid can be tailored more effectively towards reducing poverty and boosting employment Simpasa et al, 2015;Page & Söderbom, 2015;Asongu, 2015c). 8 Addison et al (2005) have established that development assistance encourages pro-poor public spending and has a positive effect on economic prosperity (growth) since it broadly aligns with poverty reduction. Their position that poverty would be higher in the absence of aid had earlier been raised by Ishfaq (2004).…”

A Wider Approach to Aid Effectiveness: Correlated Impacts on Health, Wealth, Fertility and Education

“…1 This pessimistic news contrasts strongly with some of the recent academic literature. The balance of evidence in the academic literature-which has not received a great deal of attention outside the academic community-is that, on average, aid does have some beneficial impact on human development (Addison et al 2005;Clemens et al 2004). This is not to say that aid will ever close the income gap between the northern and southern hemispheres, but rather that aid recipients experience better development outcomes, on average, than they would in the absence of aid.…”