The Roles of Aid in Politics Putting China in Perspective

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Dore, Roland (1982), “Japan and the Third World: Coincidence or Divergence of Interests,” in Cassen, Robert, Jolly, Richard, Sewell, John, and Wood, Robert (eds.) Rich Country Interests and Third World Development, pp. 128-155, London: Croom Helm.

In a number of senses, Japan differs more from the leading OECD countries than those countries differ from each other: in internal economic structure, in international involvements and in cultural predispositions and views of the outside world. I begin with the last. […]

Current Japanese perceptions of Japan’s interests in seeing the Third World develop are, it is argued, rather unclear. Japan’s dependence on some Third World countries is recognized, if regretted. As long as Saudi Arabia controls the oil, Saudi Arabia must be appeased, but it would be much better for all of us if it were under American occupation. There is little thought that the Saudis might become more ‘reasonable’ as they become richer. Other countries have a greater significance to Japan as export markets and fields for foreign investment and here – in Southeast Asia and South-Central America – there is a much clearer perception of the possibilities of all-round benefits from continued economic growth in those countries. As for Africa, the Indian subcontinent and the non-oil Middle East, however, there is little disposition to see much profit accruing to Japan from their development except in so far as that contributes generally to the buoyancy of world demand.

It is hard to see that these perceptions of where Japan’s interests lie will change in the future, given the likely prospects for either a change in value priorities of the groups in power, or a change in the relative strength of the different groups which now influence policy. Nor does this writer have the wit or the hubris to discern where the reality perceptions of the Japanese (about what policies might have what consequences) might be mistaken. The present general pattern of perceptions would be intensified if new world protectionism and intensified nationalism led to a ‘vertical’ restructuring of the world with Japan forced to concentrate on consolidating an Asian sphere of influence, perhaps in consort with China.

That pattern would, on the other hand, be substantially modified by a second – remote – possibility, namely that the concern for Japan’s ‘international standing’ might make attractive what one might call the ‘super-Scandinavian option’ – the adoption of a general ‘friend of the Third World’ policy in international affairs. It is doubtful, however, for the reasons listed earlier, whether the cultural bases for such a policy exist. There is, at any rate, very little sign of any interest in following such a line, even among potential members of alternative left-wing governments.

Dowling, J. M. and Hiemenz, Ulrich (1985), “Biases in the Allocation of Foreign Aid: Some New Evidence,” in World Development, Vol. 13, No. 4, pp. 535-541.

A survey of previous studies and the new evidence presented in this paper suggest a number of lessons concerning the allocation of development assistance among countries. There is a bias in per capita aid flows against large, populous countries that was again confirmed by the more recent data in our analysis. The existence of a middle-income bias could, however, not be confirmed. The relationship between aid flows and level of development is highly sensitive to variations in model and data coverage. A middle-income bias may result from political distortions of aid flows and from the inclusion of small island economies which receive small absolute amounts of aid but have a high inflow per capita.

In a sample of about 90 countries where such distortions are widely eliminated, a middle-income bias was found neither for the 1970-72 period nor for the 1976-78 period. Instead, regressions on 1976-78 aid flows and per capita incomes of recipient countries seem to suggest a low-income bias, i.e. low-income countries (as distinguished from extremely poor countries) received more aid per capita than middle-income countries. Whether this welcome shift in the pattern of aid allocation reflects a lasting change of development policies of donor countries and agencies can, however, not be established on the basis of the available evidence. But even if this were the case, a further reallocation of aid flows towards populous poor countries such as Bangladesh and India would seem to be desirable.

Dreher, Axel, Nunnenkamp, Peter and Thiele, Rainer (2008), “Does US Aid Buy UN General Assembly Votes? A Disaggregated Analysis,” in Public Choice, Vol. 136, pp. 139-164.

We empirically investigated the hypothesis that foreign aid is used as an instrument to influence the voting behavior of recipients in the UN General Assembly. As the main innovation of this paper, we employed disaggregated aid data in order to assess which aid categories were effective in inducing voting compliance with the donor.

Different forms of aid may differ in their ability to induce political support by recipients. In particular, program aid (notably in the form of general budget support), grants, and untied aid are most likely to shape UN voting behavior. Other forms of aid are less likely to be employed for buying political support. Donors may prefer project-related aid and concessional loans when pursuing other objectives, e.g., providing incentives for a productive use of aid in the recipient countries (especially where local governance is weak). Tied aid may be preferred when commercial donor interests dominate over political motivations.

The focus of our analysis is on US aid and its effects on voting patterns in the UN General Assembly over the period 1973–2002. Compared to other bilateral donors, the United States is widely believed to be less altruistic in allocating aid. Apart from pursuing economic self-interests, US aid is supposed to be used to buy political support from recipient countries. Various UN members are susceptible to bilateral pressure by the world’s super-power, and UN voting is considered to be relevant by the United States in defining bilateral relationships and foreign policy.

Accounting for the potential endogeneity of aid, our results provide strong evidence that US aid has indeed bought voting compliance. More specifically, the results suggest that general budget support and grants are the major aid categories with which recipients have been induced to vote in line with the United States. When replicating the results for the other G7 countries, however, we did not find a similar pattern.

By relying on specific aid categories, our analysis provides a more nuanced account than previous studies of how the United States might bribe recipient countries. As a means of obtaining a yet more complete picture of the relationship between political interests and aid allocation, one fruitful avenue for future research would be to extend the analysis of disaggregated aid data to other political spheres such as decision making in the UN Security Council. We intend to address this in future research.

As concerns the normative implications of our findings, it may be tempting to demand that aid should no longer be used to buy political support of recipient countries in the UN General Assembly (or anywhere else). Similar demands have been made before with respect to the practice of pursuing trade-related donor interests by tying aid to the procurement of goods and services from the donor country. The reason is that tied aid delivers fewer economic benefits to the recipients than untied aid. Similarly, the effectiveness of aid in fostering the economic and social development of recipient countries tends to be compromised when aid is conditioned on political favors. The developmental impact of aid, in terms of raising growth and alleviating poverty, is likely to be reduced if political donor motivations result in the diversion of aid from the neediest recipients to recipients offering political support to the donor.

However, the welfare implications of using aid to induce UN voting compliance are less clear than these concerns tend to suggest. With respect to the recipient governments of politically motivated aid, it seems safe to conclude that their utility, though not necessarily the welfare of the neediest population segments in these countries, increases—considering that they appear to prefer voting in line with the donor over forgoing aid. The welfare of other recipient countries depends on whether politically motivated aid is additional to aid given for altruistic reasons, or rather diverts aid away from the needy but politically less compliant recipients. This tricky issue should be addressed in future research.

Finally, as concerns the United States, it appears to be politically naive to demand from the world’s super-power not to use financial instruments to induce compliant voting behavior in international organizations such as the United Nations. Our finding that aid is effective in this respect tends to imply that politically motivated aid raises US welfare. Still, the use of one single (financial) instrument for multiple purposes is unlikely to be efficient. Moreover, it would help transparency and donor accountability if separate financial facilities were clearly related to specific donor motives. Politically motivated support as well as trade-related support should therefore be separated from the development aid budget.

Smaller donors may show the way to enhanced transparency and accountability for the United States. For example, Sweden and Switzerland appear to have a clearer division of responsibilities between different government agencies in dealing with developing countries. In the case of Sweden, the Swedish International Development Cooperation Agency (SIDA), the Ministry of Foreign Affairs and the Export Credits Guarantee Board are all considered to be official donors but, as it seems, with distinct mandates in international financial cooperation. If the United States had separate budget positions along similar lines, it would become more transparent what purposes the announced increase in US aid is actually meant to serve, e.g., developmental objectives such as helping achieve the Millennium Development Goals or political objectives such as forming coalitions in the United Nations.

Drury, A. Cooper, Olson, Richard Stuart and Van Belle, Douglas A. (2005), “The Politics of Humanitarian Aid: U.S. Foreign Disaster Assistance, 1964–1995,” in Journal of Politics, Vol. 67, No. 2, pp. 454–473.

We began this paper by asking if (and if yes, the degree to which) political factors influence U.S. foreign disaster assistance, rhetorically the most nonpolitical component of U.S. foreign aid. Overall, our analysis puts to rest the notion that U.S. foreign disaster assistance is purely objective and nonpolitical. It is not even close. Rather, U.S. humanitarian aid is strongly political, although more so in the granting stage than in the allocative stage. Indeed, our results paint a picture of high U.S. foreign policy decision makers as realists at heart, seeing disasters as opportunities to enhance security. The subsequent decision of how much aid to allocate, however, appears to be left more to the foreign disaster assistance bureaucracy (OFDA) and turns out to be only slightly less political because in addition to the humanitarian criterion, OFDA officials also seek to be sensitive to a variety of domestic U.S. concerns, in part to protect their own agency.

Intriguing is the fact that U.S. federal deficits and domestic disaster costs depress the likelihood that any foreign disaster assistance will be awarded, even with OFDA's relatively open spending ceiling. While U.S. disaster injuries appear initially to enhance empathy for foreign events, this empathy shifts to cost concerns once OFDA officials face allocation decisions.

A striking finding, however, centers on the powerful impact of a disaster's media salience, with one New York Times article being worth more disaster aid dollars than 1,500 fatalities. The same OFDA officials who lament the negative influence of politics concern themselves with doing what is politically relevant; that is, allocating aid to salient events. That U.S. officials use (consciously or not) such information in their decisions underscores the power of the media.

Nonetheless, the observed difference between the overtly political stage and the somewhat less political allocation stage in foreign disaster assistance merits further thought. Given that OFDA prides itself on its humanitarian mission but is located down and within a strongly political USAID/State Department structure, our findings may reflect an unequal values conflict between the humanitarian norms of the foreign disaster assistance professionals, which receive at least some expression in the allocative stage, and the almost exclusively political interests of the higher levels that dominate the granting decisions.

Additionally, the contrast between a strong political reality and the oft-repeated claim that U.S. foreign disaster assistance is nonpolitical is probably undercutting U.S. credibility. It must certainly be fostering cynicism. If foreign governments, international organizations, and nongovernmental organizations see – apparently accurately – that U.S. disaster assistance has strong political motivations, but U.S. officials maintain that their decisions are purely humanitarian, then those entities cannot help but doubt U.S. intentions. Consequently, the coordination of response and recovery efforts is likely more difficult.

Finally, because the values conflict (humanitarian versus political) seems to touch on some fundamental tensions within U.S. foreign policy, further research is certainly indicated on this calculus question in U.S. foreign disaster assistance. As additional data become available, analyses of the post-Cold War and post- September 11th eras should deepen our understanding of why, when, and how the U.S. government chooses to respond (or not to respond) to emergencies and disasters around the world. The results should be both telling and provocative.

Dudley, Leonard and Montmarquette, Claude (1976), “A Model of the Supply of Bilateral Foreign Aid,” in American Economic Review, Vol. 66, No. 1, pp. 132-142.

This paper has presented two versions of a model of the supply of foreign aid. The model attempted to explain two decisions made by the donor country. First was the decision whether or not to grant aid to a given developing country. The model suggested that the probability of granting aid was a decreasing function of the recipient’s per capita income, as well as a function of economic, political, and bandwagon considerations. The empirical results supported these hypotheses and also indicated that perhaps because of administrative costs that increase less rapidly than the amount of aid granted to a given country, the probability of granting aid increases with the potential recipient’s population.

Secondly, the model attempted to explain the amount of aid granted once the decision to give to a particular country had been taken. The apparent small country bias in the granting of per capita aid which was observed in an earlier study does not seem to be due primarily to distortion on the part of donor countries in favor of recipients with small populations. Rather it would seem to be mainly a result of misspecification of the foreign aid supply model in particular, the omission of economic, political, and bandwagon effects. Finally, there appear to be strongly decreasing returns to a donor in converting its foreign aid into impact on a given recipient country.

Dunning, Thad (2004), “Conditioning the Effects of Aid: Cold War Politics, Donor Credibility, and Democracy in Africa,” in International Organization, Vol. 58, No. 2, pp. 409-23.

The findings I present in this research note make two contributions to the debate concerning the effectiveness of foreign aid conditionality. First, the analysis suggests that the causal impact of aid on regime type may be historically contingent in ways not appreciated by previous research. The relationship between foreign aid and democracy in sub-Saharan Africa appears to be highly conditioned by the distinction between the Cold War and post–Cold War periods. Earlier empirical research, therefore, may have reported misleading averages that in fact masked temporally defined shifts in causal patterns across subgroups of cases.

Secondly, the causal mechanism to which I have pointed to explain this divergence is quite distinct from the increasingly popular “moral hazard” or “perversity” theory of aid. Whether the latter theory is correct or incorrect, it clearly makes no prediction about temporal variation in the effect of aid on democracy. In other words, there is no a priori reason to expect the allegedly “perverse” effect of aid on democracy to strengthen or weaken over time. The predictions of my credible commitment story, on the other hand, contain an important temporal dimension, because the disappearance of the geostrategic threat from the Soviet Union may have made threats from Western donors to withdraw aid much more credible.

The empirical results I present in this article are consistent with the predictions of the credible commitment story but not with the “perversity thesis.” The results therefore suggest that further theoretical attention should be focused on the issue of credible commitment in the allocation of foreign aid.

These empirical and theoretical points justify increased attention as well to the geopolitics of aid provision in future research. In contrast to recent arguments advanced by some of foreign aid’s critics, the likelihood that aid may effectively promote democracy will in fact increase when the role of strategic or geopolitical factors in allocating aid diminishes. Former World Bank economist William Easterly recently launched a scathing criticism of donor organizations, entitled “The Cartel of Good Intentions” in which he states:

among the most popular concepts the aid community has recently discovered is “selectivity”—the principle that aid will only work in countries with good economic policies and efficient, squeaky-clean institutions. The moment of aid donors’ conversion on this point supposedly came with the end of the Cold War, but in truth, selectivity (and other “new” ideas) has been a recurrent aid theme over the last 40 years….Unfortunately, evidence of a true conversion on selectivity remains mixed.38

In fact, the suggestion that aid conditionality is a recycled notion may be irrelevant. What may matter is not whether donor “selectivity” is a new idea, or whether aid will only “work” in countries with institutions that are already “squeaky-clean.” Instead, a crucial factor may be whether the threats of international donors to withdraw aid if democratic reforms are not adopted can be made credible and therefore effective. The theory and evidence presented above suggest that conditioning aid on levels of democracy in recipient countries may only be credible under certain global geostrategic circumstances—for example, those provided in Africa by the end of the Cold War. The empirical evidence presented above should provide a small measure of encouragement to the proponents of foreign aid. At the same time, for those concerned with promoting democracy in Africa, there is no guarantee that the propitious conditions posed by the end of the Cold War will persist. U.S. policymakers have recently begun point out the strategic nature of West and Central African oil reserves, implying that geopolitical criteria could play an important role in pending aid allocation decisions.39 The research presented here should thus also sound a note of alarm about the future dangers that geopolitical factors could pose to the effectiveness of aid conditionality.

Easterly, William (2003), “Can Foreign Aid Buy Growth?” in Journal of Economic Perspectives, Vol. 17, No. 3, pp. 23–48.

The widely publicized finding that “aid promotes growth in a good policy environment” is not robust to the inclusion of new data or alternative definitions of “aid”, “policy” or “growth”. The idea that “aid buys growth” is on shaky ground theoretically and empirically. It doesn’t help that aid agencies face poor incentives to deliver results and underinvest in enforcing aid conditions and performing scientific evaluations. Aid should set more modest goals, like helping some of the people some of the time, rather than trying to be the catalyst for society-wide transformation.

Easterly, William, Levine, Ross and Roodman, David (2003) “New Data, New Doubt: Revisiting Aid, Policies and Growth,” Center for Global Development Working Paper No. 26, Washington, DC, United States: Center for Global Development.

This paper reduces the confidence that one can have in the conclusion that aid promotes growth in countries with sound policies. The paper does not argue that aid is ineffective. We make a much more limited claim. We simply note that adding additional data to the BD study of aid effectiveness raises new doubts about the effectiveness of aid and suggests that economists and policymakers should be less sanguine about concluding that foreign aid will boost growth in countries with good policies. We believe that BD should be a seminal paper that stimulates additional work on aid effectiveness, but not yet the final answer on this critical issue. We hope that further research will continue to explore pressing macroeconomic and microeconomic questions surrounding foreign aid, such as whether aid can foment reforms in policies and institutions that in turn foster economic growth, whether some foreign aid delivery mechanisms work better than others, and what is the political economy of aid in both the donor and the recipient.

Easterly, William, Levine, Ross and Roodman, David (2004), “Aid, Policies, and Growth: Comment,” in American Economic Review, Vol. 94, No.3, pp. 774–80.

This paper reduces the confidence that one can have in the conclusion that aid promotes growth in countries with sound policies. The paper does not argue that aid is ineffective. We make a much more limited claim. We simply note that adding additional data to the BD [Burnside & Dollar] study of aid effectiveness raises new doubts about the effectiveness of aid and suggests that economists and policy makers should be less sanguine about concluding that foreign aid will boost growth in countries with good policies. We believe that BD should be a seminal paper that stimulates additional work on aid effectiveness, but not yet the final answer on this critical issue. We hope that further research will continue to explore pressing macroeconomic and microeconomic questions surrounding foreign aid, such as whether aid can foment reforms in policies and institutions that in turn foster economic growth, whether some foreign aid delivery mechanisms work better than others, and what is the political economy of aid in both the donor and the recipient.

Essex, Jamey (2008a), “The Neoliberalization of Development: Trade Capacity Building and Security at the US Agency for International Development,” in Antipode, Vol. 40, No. 2, pp. 229-251.

I have provided an examination of the way in which a particular US state institution, the US Agency for International Development, has acted as site and strategy for the reconfiguration of state and class-relevant practices regarding development, trade, and security. This reconfiguration, occurring in and through the structure and strategic selectivity of the US state, forms a key part of a broader transition between state and hegemonic projects, and produces a new cartography of development that centers internationalizing market relations (Jessop 1990, 2001, 2002; McMichael 2002a; Peet and Watts 1993). While this is not to suggest that this transition is complete or total, it does emphasize the ways in which a relative unity of action and ideological commitment—in this case to trade liberalization and a particularly narrow definition of security—is enforced in and through state institutions. USAID, as a pivotal state agency with a great deal of power over dominant understandings and practices of development, demonstrates one way in which the production and maintenance of neoliberalization occurs—in this case, through the adoption of TCB [Trade Capacity Building], which posits liberalized trade as the only appropriate path to economic development, and a security discourse that casts underdevelopment as a national security threat. The example of food aid and food security begins to illustrate how this configuration centers the needs of internationalizing capital and the geopolitical concerns of the US state—not new in the work of USAID, but to be achieved in markedly new ways. This paper is an initial foray into identifying specific ways in which class-relevant struggles have coalesced around USAID’s internal constitution and external relations; the next task is to identify how these struggles may be advanced to promote something beyond the democracy of the marketplace and the security of capitalist accumulation.

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