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Development aid (also development assistance, international aid, overseas aid or foreign aid) is aid given by developed countries to support the economic, sociological and political development of developing countries. It is distinguished from humanitarian aid as being aimed at alleviating poverty in the long term, rather than alleviating suffering in the short term (Foreign aid, on the other hand, includes both development aid and humanitarian aid. Some governments include military assistance in the notion "foreign aid", while a lot of NGOs tend to disapprove). Historically the term used for the donation of expertise has been technical assistance. Official Development Assistance The nations of the Organisation for Economic Co-operation and Development (OECD), made up of the developed nations of the world, have committed to providing a certain level of development assistance to underdeveloped countries. This is called Official Development Assistance (ODA), and is given by governments on certain concessional terms, usually as simple donations. It is given by governments through individual countries' international aid agencies (bilateral aid), through multilateral institutions such as the World Bank, or through development charities such as Oxfam.
Background The offer to give development aid has to be understood in the context of the cold war. The speech in which Harry Truman announced the foundation of NATO is also a founding document of development policy. "In addition, we will provide military advice and equipment to free nations which will cooperate with us in the maintenance of peace and security. Fourth, we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history, humanity possesses the knowledge and skill to relieve the suffering of these people.“ Development aid was aimed at offering technical solutions to social problems without altering basic social structures. The United States was often fiercely opposed to even moderate changes in social structures, for example the land reform in Guatemala in the early 1950s. 2004 ODA figures The combined Official Development Assistance of OECD countries in 2004 was $78.6 billion USD. The United States is the world's largest contributor of ODA in absolute terms, $19 billion, but this figure should be compared to the combined European Union contribution that totaled $42.9 billion. Expressed as a percentage of GNI, Norway's contributions remained in the lead at 0.87%, with the combined EU at 0.36%. The United States remains the lowest contributor in the OECD as a percentage of GNI, at 0.16%. * Aid effectiveness Aid effectiveness refers to the degree to which development aid works, and is a subject of significant disagreement. Dissident economists such as Peter Bauer and Milton Friedman argued in the 1960s that aid is ineffective. Many econometric studies in recent years have supported the view that development aid has no effect on the speed with which countries develop. Negative side effects of aid can include an unbalanced appreciation of the recipient's currency (known as Dutch Disease), increasing corruption, and adverse political effects such as postponements of necessary economic and democratic reforms. There is also a lot of debate about which form development aid should take in order to be effective. It has been argued that a lot of government-to-government aid was ineffective because it was merely a way to support strategically important leaders. A good example of this is the former dictator of Zaire, Mobuto Sese Seko, who lost support from the west after the cold war had ended. Mobuto, at the time of his death, had a sufficient personal fortune (particularly in Swiss banks) to pay off the entire external debt of Zaire. Another major point of criticism has been that western countries often project their own needs and solutions onto other societies and cultures. As a result of this criticism, western help in some cases has become more 'endogenous', which means that needs as well as solutions are being devised in accordance with local cultures. It has also been argued that help based on direct donation creates dependency and corruption, and has an adverse effect on local production. As a result, a shift has taken place towards aid based on activation of local assets and stimulation measures such as microcredit. Aid has also been ineffective in young recipient countries in which ethnic tensions are strong: sometimes ethnic conflicts have prevented efficient delivery of aid. In some cases, western surpluses that resulted from faulty agriculture- or other policies have been dumped in poor countries, thus wiping out local production and increasing dependency. In a several instances, loans that were considered as irretrievable (for instance because funds had been embezzled by a dictator who has already died or disappeared), have been written off by donor countries, who subsequently booked this as development aid. In many cases western governments placed orders with western companies as a form of subsidizing them, and then later shipped these goods to poor countries who often had no use for them. These projects are sometimes called 'white elephants'. A common criticism in recent years is that rich countries have put so many conditions on aid that it has reduced aid effectiveness. In the example of tied aid, donor countries often require the recipient to purchase goods and services from the donor, even if these are cheaper elsewhere. Other conditions include opening up the country to foreign investment, even if it might not be ready to do so.* The Massachusetts Institute of Technology's Abhijit Banerjee and Ruimin He have undertaken a rigorous study (PDF) of the relatively few independent evaluations of aid program successes and failures. They suggest the following interventions are usually highly effective forms of aid in normal circumstances: Private aid Development charities make up a vast web of non-governmental organizations, religious ministries, foundations, business donations and college scholarships devoted to development aid. Estimates vary, but private aid is at least as large as ODA within the United States, at $16 billion in 2003. World figures for private aid are not well tracked, so cross-country comparisons are not easily possible, though it does seem that per person, some other countries may give more, or have similar incentives that the US has for its citizens to encourage giving. * Remittances It is doubtful whether remittances, or money sent home by foreign workers, ought to be counted as a form of development aid. However, they appear to constitute a large proportion of the flows of money between developed and developing countries, although the exact amounts are uncertain because remittances are poorly tracked. World Bank estimates for remittance flows to developing countries in 2004 totaled $122 billion; however, this number is expected to change upwards in the next few years as the formulas used to calculate remittance flows are modified. The exact nature and effects of remittance money remain contested, however in at least 36 of the 153 countries tracked remittance sums were second only to FDI and outnumbered both public and private aid donations. * The IMF has also reported that private remittances may have a negative impact on economic growth as it is often used for private consumption of individuals and families, not necessarily for economic development of the region or country. * Foreign direct investment Foreign direct investment, or FDI, is often considered important in the context of development aid. It makes up the majority of available capital in developing countries. While most of the 2004 global $644 billion of FDI remained within first-world nations, UN figures estimate that 42%, or $255 billion, went to countries with developing status, an improvement over the 27% mark maintained between 2001-2003. * However, FDI remains is generally the first source of capital to dry up in times of crisis. 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