Aid Absorption and Spending in Africa: A Panel Cointegration Approach

This article focuses on the macroeconomic management of large inflows of foreign aid. It investigates the extent to which African countries have coordinated fiscal and macroeconomic responses to aid surges. In practice, we construct a panel dataset to assess the level of aid ‘absorption’ and ‘spending’. This article departs from the recent empirical literature by utilising better measures for aid inflows and by employing cointegration analysis. The empirical short-run results indicate that, on average, Africa's low-income countries have absorbed two-thirds of (grant) aid receipts. This suggests that most of the foreign exchange provided by the aid inflows has been used to finance imports. The other third has been used to build up international reserves, perhaps to protect economies from future external shocks. In the long run, absorption increases but remains below its maximum. Moreover, we also show that aid resources have been fully spent, especially in support of public investment. There is only weak evidence that a share of aid flows have been ‘saved’. Overall, these findings suggest that the macroeconomic management of aid inflows in Africa has been significantly better than often portrayed in comparable exercises. The implication is that African countries will be able to efficiently manage a gradual scaling up in aid resources.     

NGO strategies beyond aid: Perspectives from Central and South America and the Philippines

Though unevenly spread, many developing countries are experiencing a decline in aid flows. This paper explores and compares NGDO responses in regions and countries in or entering a 'beyond-aid scenario'. The comparison shows that, despite a diversity of contexts and histories, the quest for self-sustainability has become a common and dominant concern. Within a framework of options, examples show what is being attempted in terms of NGDOs altering their resource profile and the problems they encounter in doing so. Emerging evidence suggests that NGDOs are more likely to sustain themselves if they (a) look beyond finance to adopt an integrated, capacity-based approach to sustainability and internal organisational reform and (b) put effort into making good their 'relational deficit' with a wider array of domestic constituencies.     

The Return to Foreign Aid

Abstract

We estimate the average rate of return on investments financed by aid and by domestic resource mobilisation, using aggregate data. Both returns are expected to vary across countries and time. Consequently we develop a correlated random coefficients model to estimate the average returns. Across different estimators and two different data sources for GDP and investment our findings are remarkably robust; the average gross return on ‘aid investments’ is about 20 per cent. This is in accord with micro estimates of the economic rate of return on aid projects and with aggregate estimates of the rate of return on public capital.     

The Changing Development Landscape in the First Decade of the 21st Century and its Implications for Development Studies

Abstract

The first decade of the 21st century has been characterised by complex and interrelated changes that have affected development. Development studies as a discipline has traditionally been concerned with the impact of colonisation and neocolonialism, and with neoliberal-related growth models. This paper argues that, since around the turn of the century, there has been a major shift in development, driven by a series of fundamental changes, including the relative failure of the neoliberal project in the 1980s and 1990s, which by the 2000s was partly replaced by a greater concern with addressing security issues with aid; the rise of China and other middle-income countries as large resource providers for development; and the rapid increase of remittance flows to lower and middle income countries. The paper looks at how both development studies and aid policy in Australia and elsewhere have been relatively slow to engage with this rapidly changing context. The big challenges for development studies will be: engaging with developing countries as development donors with different agendas for development; the decline of much of the current neoliberal paradigm; alternative sources of development finance; and the securitisation of Western aid.     

Resource Wealth,Democracy and Mobilisation

The impact of resource wealth on society remains highly contested in the literature. Some perspectives suggest that resource wealth is associated with political apathy, while others indicate that resource wealth fosters violent civil conflicts. We leverage these seemingly contradictory impacts of natural resources on society by expanding the scope of inquiry to explore different types of resource wealth (oil and minerals) as well as other dimensions of political life (protest). Utilising a global dataset for the period 1950–2006, we test the impact of resource wealth on mobilisation. We find that while oil wealth demobilises citizens in all regime types, mineral wealth strongly correlates with higher levels of mobilisation in democracies, though not in autocracies. In addition, using survey data, we examine individual-level attitudes toward protest participation in two resource-rich states, Peru and Ecuador. The results indicate that an individual living in a mineral-rich country like Peru is more likely to participate in a protest compared to an individual living in an oil-rich country like Ecuador. Our findings highlight the contributions of the resource activism framework for understanding the connection between natural resources and mobilisation.     

Connectedness and SME Financing in Post-Communist Economies: Evidence from Uzbekistan

Abstract

This paper investigates effects of interpersonal links with bureaucrats on SME access to formal finance. A survey of 502 SMEs in post-communist Uzbekistan shows fewer SMEs with government connections express a need for external finance, but success rates of applications are higher than for SMEs without connections. Econometric models show government-connected SMEs receive more formal credit than their counterparts. The small share of SME credit available is thus distributed in favour of those capitalising on bureaucratic links, with consequent resource misallocation. Findings imply that greater SME credit flows need supplementing with capacity building that improves bank transparency and efficiency.     

Disaffection and Revolts in Nigeria During the First World War, 1914–1918

In 2012, roughly 23 million people in sub-Saharan Africa were infected with HIV, the virus that causes AIDS. Religious responses to the disease have ranged from condemnation of people with HIV to the development of innovative AIDS-related services. This article utilises insights from the social movement literature about collective identity, framing, resources, and opportunity structures to interrogate religious mobilisation against HIV/AIDS. It demonstrates that mobilisation cannot be divorced from factors such as state–civil society relations, Africa's dependence on foreign aid, or the continent's poverty. Religious HIV/AIDS activities must be analysed in a conceptual space between a civil society/politics approach and a service-provider/anti-politics framework. That is, religious mobilisation may at times seek to engage the public realm to shape policies, while at other times it may shun politics in its provision of services. Case studies that illustrate these themes and demonstrate the multi-faceted interactions between religion and HIV/AIDS are included.     

What Factors Determine the Allocation of Aid by Arab Countries and Multilateral Agencies?

This article provides a statistical analysis of the determinants of Arab aid allocation using Heckman's two-step estimator. It is found that poorer, Arab, Islamic and Sub-Saharan African countries are more likely to receive some positive amount of Arab aid (gate-keeping stage). The same is true for countries not maintaining diplomatic relations with Israel as well as those with voting patterns in the United Nations General Assembly similar to Saudi Arabia. Arab and more populous countries also receive a higher share of the total aid allocated (level stage). The same is true for Islamic countries in the case of bilateral aid and countries with voting similarity in the case of multilateral aid. Donor interest, in particular Arab solidarity, plays a clear role at both stages, whereas recipient need as measured by a country's level of income only affects the gate-keeping stage, not the level stage.     

Conflict-Induced Displacement and Violence in Colombia

Recent work in the refugee literature finds that both insurgents hiding in camps and aid to refugees may increase violence. This article assesses whether this theory applies to Conflict Induced Displaced People (IDPs). Specifically, it asks if the arrival of IDPs increases leftist violence in Colombia. Colombia has high numbers of IDPs, significant insurgent violence, and available sub-national data to enable an examination of IDP flows on leftist violence. In the Colombian case, the arrival of conflict induced displaced people is not associated with increased leftist violence.     

Resources and Rent Seeking in the Democratic Republic of the Congo

By examining the Congolese political economy through the lens of the ‘resource curse’ theory, this article aims to advance our understanding of the chronic underdevelopment of the Democratic Republic of the Congo (DRC). Proceeding in three distinct phases the article examines the effect of resource rents, foreignn aid and the likely effect of Chinese investment. It finds that a political tradition of patrimonialism and corruption based on large inflows of easily corruptible resource rents was established in the Mobutu period. In the post-conflict period the source of revenue shifted from resource rents to foreign aid, while the political tradition remained essentially unchanged. The model of the Congolese political economy established in these first two sections will then be used to make an informed assessment of the Sicomines deal. The article finds that the structured nature of the deals means that it is unlikely to perpetuate the ‘resource curse’ condition.     

How Concessional is Aid Lending?

The method used by Development Assistance Committee countries for measuring the concessionality of aid loans has remained unchanged for nearly 20 years. It was designed to measure the net cost of aid to donors not the net benefit to recipients. The discount rate used takes no account of changes in the value of the currency of the loan or of changes in prices for goods traded by recipient countries. Furthermore, it does not consider the implications of tying of aid or of policy conditionality. This paper suggests an alternative measure that shows the real net benefit of aid finance to recipients. It argues that the discount rate used by the Development Assistance Committee is too high and that changes in the value of the currency in which a loan is taken out can be important. Nevertheless, real rates of interest for developing countries remain surprisingly high despite low nominal rates due to falling prices of traded goods. This finding has implications for the future real cost of debt service to recipients.     

Framing ethnic minority mobilisation in Central Asia: The cases of Uzbeks in Kyrgyzstan and Tajikistan

This article seeks to understand why, although widely predicted, very little ethnically motivated political mobilisation has occurred in post-Soviet Central Asia. Building on the contribution of frame analysis, the article examines the case of Uzbek communities in Kyrgyzstan and Tajikistan. Different frames have been articulated by the elites and have been used to mobilise and demobilise the community. The more successful ones (those that resonated) were less confrontational, and ultimately led the Uzbek communities towards a non-confrontational path with the authorities. The article concludes that frame analysis sheds important insights on the process of the mobilisation of ethnic minorities in Central Asia, and also contributes to the literature on ethnic mobilisation.     

Persuasion and Predation: The Effects of U.S. Military Aid and International Development Aid on Civilian Killings

ABSTRACT

Powerful states frequently employ foreign aid to pursue international security objectives. Yet aid's effectiveness will be undermined if it exacerbates the effects of conflict on civilians within recipient states. This article investigates how international development aid and U.S. military aid influence recipient governments' incentives and ability to target civilians. U.S. military aid has a persuasion effect on state actors, which decreases a recipient state's incentives and necessity to target civilians. Development aid flows, however, trigger a predation effect in some environments, exacerbating civilian targeting. An analysis of aid flows in 135 countries on civilian killings between 1989–2011 provides support for both the persuasion and predation effects associated with aid.     

Old bottle new wine? The evolution of China’s aid in Africa 1956–2014

Abstract

China’s aid is frequently portrayed as a challenger to established Overseas Development Assistance (ODA) norms, but it is unclear when the distinct ‘Chinese-model’ of aid emerged and how it has evolved over time. Using new historical data on Chinese aid in Africa and the case of Ethiopia, we have three main findings. First, China developed a distinct model of mixing ODA-like aid and commercial forms of economic engagement only after the mid-1990s, reflecting institutional reforms for allocating and managing foreign official finance. Second, social sectors have played a much greater role in China’s aid programme than is commonly perceived. Finally, Chinese aid to productive sectors has changed substantially whereas in social sectors it is relatively consistent.     

Health,Need and Politics: The Determinants of Bilateral HIV/AIDS Assistance

Over the last 10 years foreign aid for HIV/AIDS control has grown from ‘millions to billions’. This study investigates donor motivations in the targeting of bilateral HIV/AIDS assistance. Are donors selecting recipients primarily based on level of need or are political and merit-based considerations at play as well? The results of our two-stage statistical analysis of bilateral HIV/AIDS assistance flows over the period 2002–2007 suggests that recipient need is an important determinant of aid flows. We also find limited evidence of dyadic political relationships having an effect on assistance targeting, while the quality of recipient policy environments seems to have a minimal impact on donor allocation decisions.     

‘We are Scared to Say No’: Facing Foreign Timber Companies in Sierra Leone's Community Woodlands

In recent years, ‘decentralisation’ has become an increasingly prominent theme in Sub-Saharan African development theory and practice, particularly around woodland management. Although much research has illuminated challenges arising in project design and implementation, ‘external’ threats to decentralised resource management initiatives have received little attention. At the same time, however, there has been a massive increase in foreign, particularly Chinese, corporate investment in the extraction of African resources. This paper examines the importance of the interaction between these two trends to local livelihoods and resource management through a case study of illegal logging by Chinese companies in Sierra Leone.     

Regime changes,economic policies and the effect of aid on growth

This study finds that on average aid has little impact on economic growth, although a robust finding is that aid promotes growth only in a politically stable environment irrespective of the quality of the country's economic policies. Aid is ineffective in an unstable environment even in the presence of good policies. The results, however, indicate that policy is more effective in promoting growth when supported by increased aid flows rather than aid being more effective in good policy environment. The empirical results also provide some tentative support for the presence of an aid Laffer curve in the politically stable countries. The allocation of aid is found to be influenced by the country size and its state of development, rather than the quality of policy.     

The Fiscal Effects of Aid in Ethiopia: Evidence from CVAR Applications

ABSTRACT

This article explores the fiscal effects of aid in Ethiopia using the Cointegrated Vector Auto-Regressive (CVAR) methodology to model complex long-run and short-run dynamics. We use national data for 1961–2010, including a measure of aid capturing flows through the budget as measured by the recipient. The data suggests three main conclusions on the long-run equilibrium. First, government long-term spending plans are based on domestic sources, treating aid as an additional source of revenue. Second, both grants and loans are positively related to tax revenue. Third, aid is positively associated with spending, with a particularly strong relation between capital expenditure and grants. Overall, our results show that aid in Ethiopia had beneficial fiscal effects.     

State and local finance in a command economy: the case of the soviet union

Two aspects of Western public finance, the economic theory of federalism and public choice theory, have insights that, if adopted in the Soviet Union, could help improve its resource allocation to permit economic growth, mitigate the problems it has with its minorities, and aid the transition away from a centralized, Communist-Party-dominated State and society. The economic reforms proposed by Chairman Mikhail Gorbachev are briefly summarized and criticized in the context of a summary discussion of governmental decisionmaking in the Soviet Union. Lessons are identified from the U.S. historical experience that suggest certain steps to improve local government as necessary preconditions for improving Soviet economic efficiency. These are free local elections, a free local press, an independent judiciary with real authority to protect the integrity of the press and local elections, real decentralization of political power to the regions, steps toward equalization of fiscal capacity among the regions, increased citizen mobility, and adoption of actions to provide incentives for Western investment in local government capital formation. This last precondition requires a convertible currency. (To achieve a convertable currency may require other economic and political changes that are beyond the scope of this paper.) Aspects of the paper rely on information publically available through mid-1989.     

Aid and state-building,Part I: South Korea and Taiwan

Under what conditions does foreign aid in the aftermath of war foster state-building? This article argues that institutional legacy and continuity and the politics of aid may matter. In the aftermath of war, for an aid regime to reinforce state-building, it may need to ensure continuity in the strength of the state and to use recipient mechanisms and finance policies that generate a greater state capacity. The existence and continuity of a Weberian state may increase the likelihood of effective state-building. If the state is relatively strong, with a Weberian bureaucracy, aid can further reinforce it when aid is spent through national systems or is aligned with local priorities, with efforts to ensure that the recipient leaders reinforce state effectiveness by implementing policies that may require greater state capacity. Evidence for this argument is provided through pairwise comparison of state-building patterns between South Korea and Taiwan.