Friday, December 7, 2012

Some Facts On Foreign Aid

The OECD has just published its Development Co-operation Report 2012: Lessons in linking sustainability and development, which includes a number of essays about various aspects of foreign aid and its role in development. (Fair warning: Those looking for deeply skeptical viewpoints about foreign aid will not find them well-represented in this volume.) Here, I'll stick to some of the big-picture facts about patterns of foreign aid and present a few figures from the Statistical Annex. (And yes, I'm the sort of person who, when getting a report, has a tendency to read the Statistical Annex first.)

First, here's the trendline of official development assistance over time, expressed in constant 2010 dollars, and showing some context of private capital flows. The heading refers to the DAC, which is the Development Assistance Committee, a group of the OECD countries that give most of the aid. The bottom blue area is official development aid. The two small ribbons in the middle are other official aid flows and grants from private voluntary organizations. The gray area at the top is private capital flows to these aid-recipient countries. Clearly, private capital flows fluctuate a lot, and it's always useful to remember that the countries which need aid the most are often not the countries that are especially attractive for private sector investment. Still, it's striking that in most years over the last three decades, private capital flows to the group of countries receiving aid is considerably larger in size than foreign aid.

This figure puts foreign aid in perspective in two other ways. In constant 2010 U.S. dollars, as measured on the right-hand axis, foreign aid from all countries in the world now exceeds $120 billion. In my checking account, this would be untold riches. But spread over the context of the world economy, it is not an especially large amount. The right-hand axis shows foreign aid as a percentage of the Gross National Income of the donor countries: since the 1960s, this share has sagged from about 0.5% of GNI to about 0.25-0.30% of GNI. To put it another way, the economies of donor countries have been growing faster than their foreign aid spending over the last half-century.

The final figure shows the sources of official development aid. Clearly, foreign aid is primarily a European project, although the U.S. also gives a significant share.

Many Americans wildly overestimate how much the federal government spends on foreign aid. For example, this 2010 survey found that Americans believe that the federal government spends 25% of its budget on foreign aid, and would like to cut that amount to 10%. In reality, only about 1% of federal spending is foreign aid. Maybe this is 1% is still too much! But as a matter of arithmetic, trimming foreign aid would have an essentially negligible effect on the U.S. governments deficit problem.