foreign aid dr. george norton agricultural and applied economics virginia tech copyright 2009 aaec...
TRANSCRIPT
Foreign Aid
Dr. George NortonAgricultural and
Applied EconomicsVirginia Tech
Copyright 2009
AAEC 3204AAEC 3204
Objectives
• Examine nature of Aid flows to developing countries, including the rationale for Aid and the types of assistance to agriculture
• Discuss the types, objectives, and, effects of food aid programs
What is foreign aid?
What are the major types of foreign development assistance?• Financial aid• Technical assistance• Food aid
Includes grants and loans with at least a 25% grant element are defined as Official Development Assistance
Nature of foreign aid to agriculture
• Financial, technical, food
• Projects and programs
• Grants and concessional loans
• Official flows and non-government aid
Examples: agr. research and extension projects, irrigation and flood control projects, agr. policy assistance, agr. education and training, direct budgetary support, flood aid.
What Percent of the Federal Budget Goes to Foreign Aid?
Foreign Aid 2007 (non-military) = $24 billion
Federal Budget 2007 = $2.4 trillion
Therefore Aid = 1% of Federal Budget
Gross Domestic Product (GDP) = $14 trillion
Therefore Aid = .17% of GDP
What is the rationale for foreign development assistance?
Rationale for aid
Humanitarian (moral or ethical responsibility to help the poor)
Political (strategic self interest)
Economic (develop markets)
Rationale for foreign aid
1. Humanitarian (moral or ethical)a. Compensation for past injusticesb. Uneven distribution of global natural resourcesc. Moral obligation to help the poor improve their nutritional
status and standard of living
2. Political (strategic self interest) (buy friends) (security assistance)
3. Economic self-interesta. Develop markets for developed country’s goodsb. Dispose of surpluses
U.S. Official Development Assistance (ODA) to Top 10 Recipients (Millions of 2000 U.S. Dollars)
1970-71Country
ODA
1988-89Country ODA
2000-01Country ODA
2003-04Country ODA
India 1625 Israel 1553 Russia 815 Iraq 2,157
Vietnam 1227 Egypt 1180 Egypt 789 Congo, D.R. 758
Indonesia 912 Pakistan 485 Israel 555 Egypt 724
Pakistan 584 El Salvador 410 Pakistan 428 Russia 695
Korea 526 India 236 Ukraine 240 Jordan 628
Brazil 421 Philippines 224 Colombia 223 Afghanistan 596
Turkey 421 Pacific Islands 199 Jordan 169 Pakistan 557
Colombia 351 Guatemala 186 Yugoslavia 155 Colombia 506
Israel 199 Bangladesh 174 Peru 154 Israel 495
Laos 187 Honduras 174 Indonesia 154 Ethiopia 472
Total above 6452 Total above 4821 Total above 3682 Total above 7,588
Total ODA 11689 Total ODA 12426 Total ODA 11163 Total ODA 18217
Is foreign development assistance in the economic self interest of both donor and recipient?
Usually. Why? Why aid rather than just relying on
commercial investment flows? Aid relieves a capital constraint that arises in
part due to high risk in developing countries. It can also be tied to technical assistance
How much aid does the United States contribute relative to other developed countries?
United States and World Official Development Assistance (ODA), 1960-2005 (Millions of 2000 U.S. Dollars) (Source: OECD Database)
Year Total ODA U.S. ODA U.S. as % of Total
1960 22256 13137 59.0
1965 28879 17904 62.0
1970 24835 11665 47.0
1975 35514 11150 31.4
1980 49248 13420 27.2
1985 41845 13683 32.7
1990 65578 14108 21.5
1995 64351 8045 12.5
2000 53735 9955 18.5
2001 51121 11163 21.8
2004 69011 17923 26.0
2006 104000 22740 21.9
Trend of total aid and aid to agriculture, 1986-2005
Index
120
110
100
90
80
70
60
50
1985 2005
Total aid
Aid toagriculture
Factors affecting AID budgets
Deficits in developed countries Geo-political concerns Aid fatigue
Is tying aid to technical assistance, education, infrastructure, or policy change a good idea?
Dateline in development of foreign aid system Rockefeller Foundation mission to Mexico FAO groundwork laid First FAO conference World Bank established Organization of American States formed Truman’s Point Four Speech Act for International Development (AID predecessor) Ford Foundation assistance to agriculture FAO headquarters established in Rome Regional Development Banks UNDP established Consultative Group for International Research formed Gates Foundation initiates significant program in
developing countries
1941
1943
1945
1946
1948
1949
1950
1951
1959-1966
1966
1971
1997
Major Development Assistance Programs
Multilateral financial network1. World Bank2. InterAmerican Development Bank3. African Development Bank4. Asian Development Bank5. European Development Fund6. United Nations Development Program (UNDP)7. World Food Programme (WFP)8. United Nations Children’s Fund (UNICEF)9. International Fund for Agriculture and Development (IFAD)10. Organization of Petroleum Exporting Countries (OPEC)11. Caribbean Development Bank
(Table continued)
Bilateral financial assistance
1. U.S. Agency for International Development (AID)
2. Japanese Overseas Economic Cooperation Fund (OECF)
3. Agencies in Germany, France, United Kingdom, and many other countries
4. Nongovernmental Organizations (NGOs)a. Foundations (Gates, Ford, Rockefeller, etc.)
b. Cooperative for American Relief Everywhere (CARE)
c. Catholic Relief
d. Many others
Table 18-4 (cont.)
Technical assistance network United Nations Development Program Food and Agriculture Organization of the United Nations (FAO) Bilateral assistance programs listed above Private Assistance International Agricultural Research Centers (IARCs) Many others
Public Law 480(P.L. 480)
What is it?
Food Aid
Original purpose: Develop market Surplus disposal Security assistance Meet nutritional
needs Promote economic
development
How important is food aid?
10% of all development aid but less than 5% of U.S. agr. exports
Less than 2% of cereals and 1% of food supply in the United States
United States provides about 60% of world food aid
Photo courtesy of World Food Program,
Brenda Barton
Have food aid levels varied over time?
1954 – 65: Surplus disposal
1966 – 72: Idealistic era
1972 – 75: Cuts and loss of credibility
1976 – present: Increased use of food aid for political purposes and famine relief
P.L. 480
Title 1
Recipient buys grain at 3 – 4% interest (or less) over 40 years
Title 2
Gifts, usually distributed through private agencies
Title 3 – Added in 1975. If recipient can show aid reached the poorest people, loan under Title 1 is forgiven
Food aid distribution in Ethiopia (1983)
Food aid issues Conflicting objectives
Surplus disposal Emergency assistance Development Foreign policy
Case for food aid Provides resources Helps poor Can stabilize food
supply and price
Case against food aid Disincentive to provide Dependency Expensive
Conclusion
• Multiple types of Aid• Multiple reasons for giving Aid• Positive and negative impacts• Can be in best interests of donor and
recipients.