Comments on "Foreign Aid Effectiveness And Selectivity: New Results" The Massachusetts Avenue Development Seminar (MADS) Center for Global Development Washington, DC April 13, 2004 Nicholas Eberstadt Henry Wendt Chair in Political Economy American Enterprise Institute

“Selectivity” and Aid, There are indeed indications that the relationship between aid absorption and local policy climate in low- income areas has been changing somewhat over time—although not necessarily in the expected directions…

Sources: The World Bank, World Development Indicators 2003 CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Sources: The World Bank, World Development Indicators 2003 CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Beyond Policy Climate: Other Possible Criteria and Attendant Indicators For Measuring Aid Effectiveness Economic Performance [per capita output, per capita exports] Living Standards [per capita output, life expectancy] Structural Aid Dependence [ODA/GNI, ODA/exports, ODA/imports, ODA/FDI] Admittedly crude indicators—but relatively reliable data (cf. international poverty lines, etc.)

Disaggregating Performance By Region, “Low and Middle Income Countries”: World Bank Designation for All Developing Regions East Asia South Asia Latin America and the Caribbean Middle East Sub-Saharan Africa Also, two “special cases” of highly “political” aid: Israel and the Russian Federation

Note: Constant 1995 US Dollars Source: The World Bank, World Development Indicators 2003 CD-ROM

Note: Constant 1995 US Dollars Source: The World Bank, World Development Indicators 2003 CD-ROM

Gross ODA, Gross ODA, Note: Series adjusted to 2002 US Dollars by PPI deflator Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris :OECD, 2004); idem., International Development Statistics, CD-ROM

Note: Series adjusted to 2002 US Dollars by PPI deflator Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris :OECD, 2004); idem., International Development Statistics, CD-ROM

Exports per Capita, Source: The World Bank, World Development Indicators CD-ROM

ODA as Percentage of ExportsODA as Percentage of Exports Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) The World Bank, World Development Indicators CD-ROM

Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM

ODA as Percentage of ImportsODA as Percentage of Imports Source: The World Bank, World Development Indicators CD-ROM

FDI as Percentage of ODA, Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM

Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM

Performance Indicators for Developing World and by Region 1984 versus 2002 (regions listed in descending order of overall performance)

Low/Middle Income Countries c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth6265 Per Capita Exports (2002 $) ODA as a Percentage of GNI1.0%0.9% ODA as a Percentage of Exports5.6%1.7% ODA as a Percentage of Imports4.5%2.9% FDI as a Percentage of ODA47%279% Average Economic Freedom Rating Total ODA (2002 $)1.2 trillion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

East Asia & Pacific c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth6669 Per Capita Exports (2002 $)81332 ODA as a Percentage of GNI0.7%0.5% ODA as a Percentage of Exports3.3%1.1% ODA as a Percentage of Imports3.7%1.2% FDI as a Percentage of ODA99%751% Average Economic Freedom Rating Total ODA (2002 $)141 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

South Asia c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth5663 Per Capita Exports (2002 $)2866 ODA as a Percentage of GNI1.5%1.0% ODA as a Percentage of Exports21.9%9.4% ODA as a Percentage of Imports13.1%5.1% FDI as a Percentage of ODA2%47% Average Economic Freedom Rating Total ODA (2002 $)139 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Israel c. 1992c GDP Per Capita (1995 $)14,25917,068 Life Expectancy at Birth7679 Per Capita Exports (2002 $) ODA as a Percentage of GNI3.2%0.8% ODA as a Percentage of Exports10.6%1.9% ODA as a Percentage of Imports7.5%0.3% FDI as a Percentage of ODA29%428% Economic Freedom Rating Total ODA (2002 $)29 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Latin America & the Caribbean c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth6671 Per Capita Exports (2002 $) ODA as a Percentage of GNI0.5%0.3% ODA as a Percentage of Exports2.1%1.3% ODA as a Percentage of Imports2.1%1.2% FDI as a Percentage of ODA162%1356% Average Economic Freedom Rating Total ODA (2002 $)101 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Middle East c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth6269 Per Capita Exports (2002 $) ODA as a Percentage of GNIN/A0.7% ODA as a Percentage of Exports3.3%1.7% ODA as a Percentage of Imports3.0%2.7% FDI as a Percentage of ODA172%164% Average Economic Freedom Rating Total ODA (2002 $)74 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Russia c. 1992c GDP Per Capita (1995 $) Life Expectancy at Birth6766 Per Capita Exports (2002 $) ODA as a Percentage of GNI0.5%0.4% ODA as a Percentage of Exports6.2%1.2% ODA as a Percentage of Imports2.6%1.3% FDI as a Percentage of ODA15%190% Economic Freedom Rating Total ODA (2002 $)50 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Sub-Saharan Africa c. 1984c GDP Per Capita (1995 $) Life Expectancy at Birth4946 Per Capita Exports (2002 $) ODA as a Percentage of GNI4.9%4.6% ODA as a Percentage of Exports12.9%16.4% ODA as a Percentage of Imports12.2%11.0% FDI as a Percentage of ODA13%74% Average Economic Freedom Rating Total ODA (2002 $)319 billion Sources: OECD, Geographical Distribution of Financial Flows of Aid to Recipients (Paris: OECD, 2004) OECD, International Development Statistics, CD-ROM The World Bank, World Development Indicators CD-ROM Gwartney, James and Robert Lawson, Economic Freedom of the World: 2003 Annual Report The Fraser Institute, 2003.

Preliminary Conclusions Did the policy climate in recipient low-income areas improve between 1984 and 2002? Very clearly, yes—improvement was marked and general. Did aid “selectivity” and aid “effectiveness” contribute positively to this outcome? The answer to this question is not at all self-evident. For low-income, aid-receiving areas as a whole, trends were generally positive for economic performance (up), living standards (up), and structural aid dependence (down). But performance “story lines” varied tremendously between regions—with the most heavily aid-dependent areas characterized by measured stagnation, or retrogression, in economic performance and living standards. How to explain the striking negative association among regions between high aid levels and poor trends in economic performance and living standards: Measurement error? “Neighborhood effects”? Independent influence of structural aid dependence? Some combination? Other factors? Perhaps surprisingly, markedly different performance records for highly “political” aid in different settings: the “story line” for Russia looks rather disappointing, while the “story line” appears more promising.