Filip Spagnoli
Via Bill Easterly’s blog, I discovered this paper on the so-called “aid curse“: just as dependence on natural resources has a negative effect on the quality of a country’s governance and democracy (a phenomenon called the resource curse), so has international development aid (or official development aid, ODA), especially in countries which depend heavily on aid (and in which aid represents a large percentage of GDP).
This is surprising, because one of the aims of international development aid is to bolster the quality of governance, directly through aid targeted at this objective, or indirectly on the assumption that better education, health care etc. will ultimately lead to better governance.
It seems now that there is a correlation (and perhaps even a causal link) between high levels of aid and low levels of democracy. The explanation is that foreign aid , like the revenue of natural resources, provides an opportunity for governments and leaders to appropriate funds illegitimately. And, because they benefit from aid, they will try to exclude other groups from power. This obviously destroys democratic institutions or makes it more difficult to establish them.
Foreign aid also reduces the need for a system of taxation. And without such a system, it’s a lot more difficult to construct a well-functioning government, and it’s less likely that forces for representation take root (historically, the principle of “no taxation without representation” has promoted democracy). When a government doesn’t depend on taxes for its revenues, then it will have less incentives to seek accountability.
These graphs from the paper show how the levels of democracy in countries decrease while the levels of aid (as official development aid – ODA - over GDP) increase:None of this proves that we should give less aid to developing countries. Probably the opposite is true. What it proves is that aid is more than just sending money. Donors should check what happens to their money, should target the money, and should bypass the “sticky fingers” in government as much as possible. To some extent, donors should also make aid conditional on democratic reform because this reform is the way to avoid aid inefficiency. However, when doing so, they should be careful not to put the cart before the horse: one of the goals of aid is precisely democratization. more...
Commentary from TGW:
It is abundantly clear by now a country that receives more Foreign Aid is in a worst situation than those who do less. The dependence theory often focuses on the poor, when in actuality the urban élites and the administrators of the funds are the one who depends on Aid and sustain it by all means necessary to maintain their life style.
It is not uncommon to see the industry flourishing in a short span of time and takeing over the basic service of governments by further expanding in other areas. It is customary government officials with their insider knowledge and connection setting up shop to take advantage of the massive infusion of Aid fund.
The cycle of dependence can not be broken until the élites' dependence on Aid is dealt with, and until they stop perpetuating problems geared on fund raising than problem solving.
