Rethinking aid allocation in light of current global challenges

Peter S. Heller / Nov 2011

After sixtyyears of foreign aid efforts and dramatic change in the world of aid recipients, many concerns are being raised about the effectiveness of current aid programmes to developing countries. The appropriateness of aid is particularly questionable when considering the character of the challenges that the global economy will confront by 2025.

In the UNU-WIDER working paper ‘Rethinking the World of Aid in the Twenty-First Century’ the optic of scenario analysis is applied to frame the potential contexts in which resource transfers can play a role in the global economy. Furthermore, it is questioned whether traditional priorities for aid—particularly those derived from industrial country donors of the DAC—are serving appropriate purposes.

A new role for aid?

Rethinking the role of aid is especially relevant as the resources available for aid from aging industrial societies stabilize, and potentially even shrink. In essence, the starting point is to identify the policy challenges that most imperil the global economy and polity in the future. Questions should be asked about what are the specific priorities that aid should be used for, in which ways donors can contribute to these different policy objectives, and what are the roles that different current aid actors (donors and recipients) should play. Aid resources should be allocated to address these specific challenges and diminishing the threats that they pose. This strategy would maximize the impact of these resources by allocating them to fit the comparative advantage of donor countries. These challenges include the effects of globalization (with far reaching forms of interconnectedness across countries), global warming, dramatic biodiversity loss, and geopolitical turbulence.

A proposal for redirecting DAC donor aid flows

While recognizing the moral importance of addressing global poverty, neglect, gender discrimination and needless suffering from treatable diseases, the paper argues that private philanthropies, industrial NGOs and civil society, as well as emerging market donors—which have become increasingly important over the last decade—should play the principal role in supplying aid resources to the poorest countries and for vital social services.

DAC donors should instead focus their aid on addressing the need for global public policy initiatives and on the provision of global public goods. This would also include efforts to dramatically enhance the technologies available to low-income countries that can lower the price of interventions that can significantly improve productivity in many sectors, both economic and social. Industrial countries would also serve poor countries more effectively by removing trade barriers and subsidies that unfairly bias the playing field against LIC products and services.

Peter S. Heller is a Senior Adjunct Professor of International Economics at the Paul H. Nitze School of Advanced International Studies at The Johns Hopkins University.

This article is based on UNU-WIDER working paper no. 2011/67, 'Rethinking the World of Aid in the Twenty-First Century'. It originally appeared in the December 2011 issue of the WIDERAngle newsletter.