Development aid


Development aid is a type of aid given by governments and other agencies to support the economic, environmental, social, and political development of developing countries, as well as least developed, low-income or poor countries. It is distinguished from humanitarian aid by aiming at a sustained improvement in the conditions in developing countries, as well as least-developed, poor of low-income countries, rather than short-term relief. The overarching term is foreign aid. The amount of foreign aid is measured though official development assistance. This is a category used by the Development Assistance Committee of the Organisation for Economic Co-operation and Development to measure foreign aid.
Aid may be bilateral: given from one country directly to another; or it may be multilateral: given by the donor country to an international organisation such as the World Bank or the United Nations Agencies which then distributes it among the developing countries. The proportion is currently about 70% bilateral 30% multilateral.
About 80% of the aid measured by the OECD comes from government sources as official development assistance. The remaining 20% or so comes from individuals, businesses, charitable foundations or NGOs. Most development aid comes from the Western industrialised countries but some poorer countries also contribute aid. Development aid is not usually understood as including remittances received from migrants working or living in diaspora—even though these form a significant amount of international transfer—as the recipients of remittances are usually individuals and families rather than formal projects and programmes.
Negative side effects of development aid can include an unbalanced appreciation of the recipient's currency, increasing corruption, and adverse political effects such as postponements of necessary economic and democratic reforms.

Related concepts

There are various terms that used interchangeably with development aid in some contexts but possess different meanings in others.
  • Development cooperation: In the early 21st century, development cooperation has become a key term in a discourse associated with the Global Partnership for Effective Development Cooperation. In this context it encompasses activities that may not be directly related to aid, such as domestic and global policy changes, co-ordination with profit-making and civil society entities, and exchanges between less-developed countries. Despite suggesting a wider range of co-ordinated action, the term is often used synonymously with development aid.
  • Development assistance: is a synonym of development aid often used in international forums such as the UN and the OECD. Official development assistance is aid given by OECD-member governments that specifically targets the economic development and welfare of countries with the lowest per capita incomes. It includes humanitarian aid as well as development aid in the strict sense.
  • Aid: is a more general concept which can include humanitarian aid and other voluntary transfers not specifically aimed at development. Other expressions that relate to aid in general include foreign aid, international aid, and overseas aid.

    Types

Bilateral and multilateral official development assistance

Analyses of development aid often focus on Official development assistance, as ODA is measured systematically and appears to cover most of what people regard as development aid.
ODA may be bilateral: given from one country directly to another; or it may be multilateral: given by the donor country to pooled funds administered by an international organisation such as the World Bank or a UN Agency which then uses its funds for work in developing countries. To qualify as multilateral, the funding must lose its identity as originating from a particular source. The proportion of multilateral aid in ODA was 28% in 2019.

Trilateral

Trilateral development cooperation is a type of development cooperation, wherein OECD DAC member states or multilateral institutions provide development assistance to emergent development actors, with the aim of assisting them in carrying out development projects in other developing countries.
The purpose of trilateral development cooperation is to combine the strengths of both OECD DAC member states and the new development actors in delivering more effective aid to recipient countries. The OECD DAC member states and multilateral institutions participate in trilateral development cooperation with the aimed goal of increasing aid effectiveness and efficiency, phasing out bilateral aid, transferring good practices, and capacity building.
Over 2019-2022, the Americas received one third of the global resources provided through triangular co-operation. The second largest recipient region was Africa, followed by Asia-Pacific. Multi-regional projects accounted from approximately one quarter of reported disbursements.

Non-ODA development aid

There are 4 categories of development aid that fall outside ODA, notably: private aid, remittances, aid to less-poor countries and aid from other donor states.
OECD distinguishes between development aid that is governmental on the one hand, and private on the other. Official aid may be government-to-government, or it may be channeled through intermediary bodies such as UN agencies, international financial institutions, NGOs or other contractors. NGOs thus commonly handle both official and private aid. Of aid reported to the OECD, about 80% is official and 20% private.
Development aid is not usually understood as including remittances received from migrants working or living in diaspora—even though these form a significant amount of international transfer—as the recipients of remittances are usually individuals and families rather than formal projects and programmes. World Bank estimates for remittance flows to "developing countries" in 2016 totalled $422 billion, which was far greater than total ODA. The exact nature and effects of remittance money remain contested. The International Monetary Fund has reported that private remittances may have a negative impact on economic growth, as they are often used for private consumption of individuals and families, not for economic development of the region or country.
ODA only includes aid to countries which are on the DAC List of ODA Recipients which includes most countries classified by the World Bank as of low and middle income.
Loans from one state to another may be counted as ODA only if their terms are substantially more favourable than market terms. The exact rules for this have varied from time to time. Less-concessional loans therefore would not be counted as ODA but might be considered as including an element of development aid.
Some states provide development aid without reporting to the OECD using standard definitions, categories and systems. Notable examples are China and India. For 2018, the OECD estimated that, while total ODA was about $150 billion, an additional six to seven billion dollars of ODA-like development aid was given by ten other states.
Recognizing that ODA does not capture all the expenditures that promote development, the OECD in 2014 started establishing a wider statistical framework called TOSSD that would count spending on "international public goods". In March 2022, TOSSD was adopted as a data source for indicator 17.3.1 of the SDGs global indicator framework to measure development support. The TOSSD data for 2020 shows more than USD 355 billion disbursed to support for sustainable development, from almost 100 provider countries and institutions. The Commitment to Development Index published annually by the Center for Global Development is another attempt to look at broader donor country policies toward the developing world. These types of activity could be formulated and understood as a kind of development aid although commonly they are not.

Output-based aid (OBA)

Extent

Most development aid is counted as part of the official development assistance reported by governments to the OECD. The total amount of ODA in 2018 was about $150 billion. For the same year, the OECD estimated that six to seven billion dollars of aid was given by ten other states, including China and India. However, these amounts include aid that is humanitarian in character as well as purely developmental aid. The proportion of development aid within ODA was about 80%.
The OECD classifies ODA development aid by sector, the main sectors being: education, health, government & civil society, economic infrastructure, and production. Additionally, there are "cross-cutting" aims; for instance, environmental protection, gender equality, urban and rural development concerns.
Some governments include military assistance in the notion of foreign aid, although the international community does not usually regard military aid as development aid.
Development aid is widely seen as a major way to meet Sustainable Development Goal 1 for the developing nations.

Top recipient countries

CountryUS$, billions
Afghanistan

Top donor countries

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United States

By type of project

Favourable impacts

Research has shown that development aid has a strong and favorable effect on economic growth and development through promoting investments in infrastructure and human capital. According to a study conducted among 36 sub-saharan African countries in 2013, 27 out of these 36 countries have experienced strong and favorable effects of aid on GDP and investments. Another study showed that aid per capita supports economic growth for low income African countries such as Tanzania, Mozambique and Ethiopia, while aid per capita does not have a significant effect on the economic growth of middle income African countries such as Botswana and Morocco. Aid is most beneficial to low income countries because such countries use aid received for to provide education and healthcare for citizens, which eventually improves economic growth in the long run.
Some econometric studies suggest that development aid effectively reduces poverty in developing countries.
Other studies have supported the view that development aid has no clear average effect on the speed with which countries develop.
Dissident economists such as Peter Bauer and Milton Friedman argued in the 1960s that aid is ineffective: "an excellent method for transferring money from poor people in rich countries to rich people in poor countries."
In economics, there are two competing positions on aid. A view pro aid, supported by Jeffrey Sachs and the United Nations, which argues that foreign aid will give the big push to break the low-income poverty trap poorer countries are trapped in. From this perspective, aid serves to finance "the core inputs to development – teachers, health centers, roads, wells, medicine, to name a few".. And a view that is skeptic about the impacts of aid, supported by William Easterly, that points out that aid has not proven to work after 40 years of large investments in Africa.
Regarding climate policy, climate finance channelled through development aid programs is treated as a thematic priority area and is mostly steered by existing development aid priorities and partnerships, rather than by the requirements for effective climate policy.