The history of development cooperation (with a focus on India) Hasselt University February 2014

1. The history of development cooperation(with a focus on India)Hasselt University February 2014 Robrecht Renard

2. Outline • Some basic factsaboutaidand India • Does India deserve more aid: the equity argument • Whataboutnationalredistribution? • How efficient is aidto India? • Optimalmix of policy instruments • Aidand public goods • Conclusion Robrecht Renard

3. 1. Some basic factsaboutaidandIndia Robrecht Renard

4. 2. The equity argument Robrecht Renard

5. But beaware of povertydynamics • Source: Chandy and Gertz, 2011 Robrecht Renard

6. 3. Whataboutnationalredistribution ? • There may be more poor people in India than in SSA, but it also has more billionaires than the United Kingdom • Implicit marginal tax rate (World Bank): • Indian GNI/cap is less than $4 per day, and 42% population under poverty line of $1.25 • Required tax would be close to 100%  no billionaires left, or higher middle class ! • For comparison • China: 37%, Peru <2%, Ecuador <5% • Conclusion: from $4000 GNI/cap onwards internal redistribution feasible, before that economic growth plus international solidarity required Robrecht Renard

7. 4. How efficient is aidto India? • In theory, we may expect aid to India to have good impact on the poor, because (1) good absorption capacity and democratic government (2) no aid dependency or diminishing returns to aid • From this perspective, aid to India may be more efficient than aid to some African countries • Difficult to confirm empirically because of lack of rigorous synthesis evaluations Robrecht Renard

8. 5. Optimal mix of policy instruments • Aid just one of many policy instruments of rich countries that affect prospects of poorer countries • Aid is effective but not very efficient (for political and institutional reasons on both donor and recipient sides) • Other instruments may be more efficient for recipients, and less costly for donors • Trade, macroeconomic policies, financial supervision, immigration policies, etc can have powerful effect on development • But it depends on country • Non-ODA policies very important for India • Aid is more important for Burundi Robrecht Renard

9. 6. Public Goods • Equitydictatesthatdevelopedcountriescontributeproportionally more • Some of thisfinancingis ODA eligible • Some of thisfinancing concerns country-focusedprogrammes • Fighting HIV/AIDS, othercontagiousdiseases • Bio-diversity and climate change related actions • Fostering cross-border knowledgetransfers • Preventing state failure and regionalconflict,… • Application to India: south-southscientific cooperation, global warming Robrecht Renard

10. 7. Conclusion • It is difficult to say whether in general aid to India has been effective and efficient • But its impact has been marginal because of its modest relative size • As in China, success is due to domestic policies • More aid may be justified • Large number of poor people • Efficiency may be higher than elsewhere • Yet other policy instruments will probably be more efficient • But more official aid is an unlikely scenario • Because of the reluctance on part of India and donor countries alike Robrecht Renard