Foreign Aid Heterogeneity: Issues and Agenda

The present paper serves as an introduction to this special issue providing a justification for, and linking and introducing to the articles that follow. A central message emanating from the papers included in this special issue is that it is not sufficient to double aid efforts by simply raising and transferring more money. Substantial effort needs to be taken in order to delve deeper into the various routes and transmission mechanisms through which the various types of aid operate. And this is a timely as well as important issue in view of recent calls (as well as concerns) for another “big push” approach in development aid. JEL no. F35     

Aid and trade

This paper surveys the recent theoretical and empirical literaturethat explores the relations between aid and trade and asks aboutthe complementarity or substitution effects at work. We distinguishbetween the effects of aid on trade flows and on trade policies,of the donor as well as the recipient countries. Special focusis given on trade facilitation, or ‘aid for trade’.     

The Millennium Development Goals, How Realistic Are They?

Summary In its Millennium Declaration of September 2000, the United Nations adopted the Millennium Development Goals (MDG), to be reached in 2015 through concerted efforts worldwide. According to UN-calculations, the estimated costs in terms of additional development aid of meeting the MDGs in all countries vary from 121 billion US dollars in 2006 to 189 billion US dollars in 2015. The present communication reviews the figures reported. It appears that while Asia is well on track to achieve the goals, essentially through efforts of its own, Africa is lagging behind, albeit that according to detailed survey data on weight-for-length among adults collected in Africa for the US aid agency, rates of undernutrition are about 58 percent of the levels used as a reference by the UN, which are based on assessment of food production. Yet, child undernutrition comes out higher in these surveys. Besides mentioning reservations about the adequacy of these MDG-yardsticks, we consider the cost estimates for Africa as presented in the UN-reports and subsequently assessed in the literature. It appears that these estimates are too low, even if all MDG-funds were concentrated on this continent, essentially because they are set up as shopping lists that are necessarily incomplete and, among others, disregard many of the indirect cost of delivering the goods to the target beneficiaries, including the cost of providing adequate security and avoiding corruption. Nonetheless, recalling how hopeless the situation looked some 30 years ago for China, India, and Bangladesh, where unprecedented numbers have now escaped extreme poverty during the past decade and a half, we submit that over a time horizon of about twice the 15 years of the MDG’s and with adequate international support, realization of the MDG-targets should be possible for Africa too. An erratum to this article can be found at     

Business Cycle Fluctuations,Large Macroeconomic Shocks,and Development Aid

We examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970–2005. We find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries. While aid outlays contract sharply during severe downturns in donor countries, they rise steeply when aid-receiving countries experience large adverse shocks. Our findings suggest that development aid may play an important cushioning role in developing countries, but only during times of severe macroeconomic stress. Our results are robust to alternate definitions of aid flows, specifications, and estimation techniques.     

Indonesia's Debt-for-Development Swaps: Past,Present, and Future

This article systematically reviews recent debt-for-development swaps in Indonesia, the only debtor country where the number of such swaps warrants their being considered as a deliberate government debt-relief policy and development finance strategy. We show that the 11 swaps Indonesia has signed with its bilateral creditors since 2002 have performed rather erratically across four criteria: an increase in resources at the debtor country or government budget level or both; an increase in resources for intended sector purposes; whether, taken together, these swaps ease debt burdens; and the extent of their alignment with government policy and systems. We find little evidence of learning on the Indonesian side. We believe that Indonesia can take a more proactive stance in negotiating the economic terms underlying its debt swaps, and we suggest concrete ways for it to do so.