Broadly speaking, foreign aid implies a transfer of resources from one country, referred to as the donor, for the benefit of another, called the recipient. This transfer can take place directly, through bilateral channels, or indirectly, through multilateral ones. The purpose of aid varies over space and time, ranging from military aid to humanitarian. In more strict definitions, the concept refers exclusively to official development aid, which should be distinguished from humanitarian or relief aid. The former aims at finding long-term solutions that allow recipient societies to meet and generate solutions to their needs, the latter at alleviating human suffering in urgent situations. Flows of resources aiming at generating development are of three types: (1) official development assistance (ODA), (2) foreign direct investment (FDI), and (3) private donations. According to the Organisation for Economic Co-operation and Development (OECD), ODA includes grants or loans to developing countries that are (a) undertaken by the official sector, (b) with promotion of economic development and welfare as the main objective, and (c) at concessional financial terms (if a loan, have a grant element of at least 25%). Grants, loans, and credits for military purposes are generally not included, but it was exactly in this field that the history of aid began. Today, the relevance of foreign aid lies in the fact that it is one of the most important means used to assist the developing world in achieving poverty reduction and economic and social advance.
In Western history, the origins of foreign aid can be traced back to when states supported militarily strategic partners, but it is not until the 18th century that foreign aid became more systematic. The best examples are, perhaps, the use of British foreign aid in its rivalry with France or the subsidies of Prussia to some of its allies. The 19th century witnessed the first steps toward foreign aid as we know it today. In 1812, the U.S. Congress passed the Act for the Relief of the Citizens of Venezuela. In the 1870s, the first discussions on the finances for the colonies took place in Britain, leading gradually to Britain's passage of the Colonial Development Act in 1929, which provided modest government funds to facilitate development in the colonies rather than forcing them to rely on exports of agricultural goods. However, many of the ideas and infrastructure that sustain present foreign aid were born in the postwar period. The Bretton Woods Conference in 1944, the establishment of the United Nations in 1945, the launching of the Marshall Plan in 1947, the creation of the UN Technical Assistance in 1949, and the Development Assistance Committee (DAC) of the OECD in 1961 mark some of the grounds of modern foreign aid. The scale of foreign aid grew bigger with the independence of nation-states in the developing world.
Since its start, modern foreign aid has shifted strategies. The driving forces that lie behind this are to be found in the relationship between foreign aid and development doctrines. Thus, during the 1950s, when belief in industrialization prevailed, foreign aid focused on aggregate large-scale resource transfer to trigger or speed up the Rostovian industrial “take-off.” In the late 1960s, economic dualism between the innovative export sector and a traditional, locally oriented one, as well as human-capital issues such as education and technical training, became relevant to development theories, making foreign aid incorporate more issues such as education and rural development. A further shift took place during the mid 1970s, when development theories began pointing at serious hindrances to economic development related to rural-urban migration, unemployment, and mass poverty. In the 1980s, the deep economic stagnation in Africa and the inability of different political regimes to overcome it were hard to ignore. In this state of things, the successful East Asian economies attracted attention and became the central model in development debates. Based on specific interpretations of this success, foreign aid became more conditional and focused on structural adjustment programs that were supposed to discipline the political and economic systems through market mechanisms. Until the mid 1990s, structural adjustment programs were still the main tool for both development strategies and foreign aid. However, since the late 1990s, it became obvious to many, including the World Bank and the IMF themselves, that if foreign assistance to developing countries was to continue it should retake poverty reduction strategies.
Today, the so-called Millennium Development Goals are the target toward which the United Nations and the international community's endeavors are directed, becoming the actual core of the hegemonic discourse. The first of these goals is to halve global poverty and hunger by 2015.
Little work in the discipline of geography has been done on the study of spatial distributions of foreign aid. Most of the studies that explored the issue from a geographic perspective are dominated by disciplines such as international relations and political science.
Nevertheless, a brief look at foreign aid flows during the postwar period reveals that the bulk originates from the 22 DAC members, which consist of the 15 original European Union members, Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the United States. Among these, the United States contributes the most, followed by Japan and the EU members.
In absolute terms, foreign aid has grown since the 1960s. There is a clear decline, however, when foreign aid is measured as a proportion of the gross domestic product (GDP). The figure is far below 0.7%, which is the goal set by the OECD. Between 1990 and 1996, the average GDP proportion for the DAC members declined from 0.33% to 0.22%. Today, only a few DAC members, such as Norway, Denmark, Luxembourg, Sweden, and Holland, are fulfilling the goal of 0.7%.
From the recipient perspective, the inflows have been quite diverse for the different regions. The most populated region, Asia, has received much less foreign aid per capita than both Africa and Latin America. Between 1960 and 2004, the inflows to Asia have been very stable and low, always below $1 per capita. Paradoxically, the material and economic conditions, especially the economic growth, are today far better in East Asia than elsewhere. This observation reemphasizes the idea that foreign aid is only one part of economic development and could never explain the motions of economic development per se.
It is worth noting that the practice of foreign aid is no longer exclusive to the developed world as countries such as China, India, and South Korea are becoming important donors.
After more than 50 years and more than $1 trillion spent on foreign aid, there is still no compelling evidence that aid promotes economic development. Many scholars suggest that foreign aid can only play a modest role. Endogenous factors such as the institutional environment and the competence and goodwill of the leadership are crucial. Much research claims the relevance of the above-mentioned factors; some refer to them as the absorptive capacity of recipient countries. However, opinions differ on how the donor community should proceed. There are those who underline the opportunities that an increase in foreign aid could ensure, while others draw attention to the negative effects it might engender. The first group claims that with an increase in foreign aid combined with better donor coordination, foreign aid can improve the economic situation in recipient countries. In opposition, the latter group suggests that with more foreign aid, dependency will grow stronger, while the capacity to mobilize domestic resources, to create a national economic basis, and to compete internationally will be drastically diminished. These critics also warn that corruption may increase in the foreign aid chain.
Developing World, Development Theory, Organisation for Economic Co-operation and Development (OECD)
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