Comments on "Foreign Aid Effectiveness And Selectivity: New Results"

1. Comments on "Foreign Aid Effectiveness And Selectivity: New Results" The Massachusetts Avenue Development Seminar (MADS) Center for Global Development Washington, DC April 13, 2004 Nicholas Eberstadt Henry Wendt Chair in Political Economy American Enterprise Institute <eberstadt@aei.org>

2. “Selectivity” and Aid, 1984-2002 There are indeed indications that the relationship between aid absorption and local policy climate in low-income areas has been changing somewhat over time—although not necessarily in the expected directions…

3. Sources: The World Bank, World Development Indicators 2003 CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

4. Sources: The World Bank, World Development Indicators 2003 CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

5. Beyond Policy Climate: Other Possible Criteria and Attendant Indicators For Measuring Aid Effectiveness • Economic Performance [per capita output, per capita exports] • Living Standards [per capita output, life expectancy] • Structural Aid Dependence [ODA/GNI, ODA/exports, ODA/imports, ODA/FDI] • Admittedly crude indicators—but relatively reliable data (cf. international poverty lines, etc.)

6. Disaggregating Performance By Region, 1984-2002 • “Low and Middle Income Countries”: World Bank Designation for All Developing Regions • East Asia • South Asia • Latin America and the Caribbean • Middle East • Sub-Saharan Africa • Also, two “special cases” of highly “political” aid: Israel and the Russian Federation

7. Note: Constant 1995 US Dollars Source: The World Bank, World Development Indicators 2003 CD-ROM

8. Note: Constant 1995 US Dollars Source: The World Bank, World Development Indicators 2003 CD-ROM

9. Gross ODA, 1984-2000 Note: Series adjusted to 2002 US Dollars by PPI deflator Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris :OECD, 2004); idem., International Development Statistics, 2002. CD-ROM

10. Note: Series adjusted to 2002 US Dollars by PPI deflator Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris :OECD, 2004); idem., International Development Statistics, 2002. CD-ROM

11. Exports per Capita, 1984-2001 Source: The World Bank, World Development Indicators 2003. CD-ROM

12. Source: The World Bank, World Development Indicators 2003. CD-ROM

13. ODA as Percentage of Exports Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) The World Bank, World Development Indicators 2003. CD-ROM

14. Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM

15. ODA as Percentage of Imports Source: The World Bank, World Development Indicators 2003. CD-ROM

16. Source: The World Bank, World Development Indicators 2003. CD-ROM

17. FDI as Percentage of ODA, 1984-2001 Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM

18. Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM

19. Performance Indicators for Developing World and by Region 1984 versus 2002 (regions listed in descending order of overall performance)

20. Low/Middle Income Countries Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

21. East Asia & Pacific Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

22. South Asia Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

23. Israel Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

24. Latin America & the Caribbean Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

25. Middle East Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

26. Russia Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

27. Sub-Saharan Africa Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients 1988-2002 (Paris: OECD, 2004) OECD, International Development Statistics, 2002. CD-ROM The World Bank, World Development Indicators 2003. CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

28. Preliminary Conclusions • Did the policy climate in recipient low-income areas improve between 1984 and 2002? Very clearly, yes—improvement was marked and general. • Did aid “selectivity” and aid “effectiveness” contribute positively to this outcome? The answer to this question is not at all self-evident. • For low-income, aid-receiving areas as a whole, trends were generally positive for economic performance (up), living standards (up), and structural aid dependence (down). • But performance “story lines” varied tremendously between regions—with the most heavily aid-dependent areas characterized by measured stagnation, or retrogression, in economic performance and living standards. • How to explain the striking negative association among regions between high aid levels and poor trends in economic performance and living standards: Measurement error? “Neighborhood effects”? Independent influence of structural aid dependence? Some combination? Other factors? • Perhaps surprisingly, markedly different performance records for highly “political” aid in different settings: the “story line” for Russia looks rather disappointing, while the “story line” appears more promising.