University of Antwerp The history of development cooperation (with a focus on India) Hasselt University February 2014 Robrecht Renard

University of Antwerp slide 2 Outline 1.Some basic facts about aid and India 2.Does India deserve more aid: the equity argument 3.What about national redistribution? 4.How efficient is aid to India? 5.Optimal mix of policy instruments 6.Aid and public goods 7.Conclusion Robrecht Renard 2

University of Antwerp slide 3 1. Some basic facts about aid and India Robrecht Renard 3

University of Antwerp slide 4 2. The equity argument averagesaid per capita ($ per year) GNI per capita ($) aid per poor person (1.25$) population (million) aid % GNI Bangladesh Bolivia 691, Burundi Cambodia China 13,63061, Congo, Dem. Rep Ethiopia Haiti India 21,17071, Indonesia 52, Laos Nicaragua 1251,4001, Nigeria 111, Rwanda South Africa 225, Sri Lanka 332, Tanzania Vietnam 361, Robrecht Renard 4

University of Antwerp slide 5 But be aware of poverty dynamics Source: Chandy and Gertz, 2011 Robrecht Renard 5

University of Antwerp slide 6 3. What about national redistribution ? There may be more poor people in India than in SSA, but it also has more billionaires than the United Kingdom Implicit marginal tax rate (World Bank): –Indian GNI/cap is less than $4 per day, and 42% population under poverty line of $1.25 –Required tax would be close to 100%  no billionaires left, or higher middle class ! For comparison –China: 37%, Peru <2%, Ecuador <5% –Conclusion: from $4000 GNI/cap onwards internal redistribution feasible, before that economic growth plus international solidarity required Robrecht Renard 6

University of Antwerp slide 7 4. How efficient is aid to India? In theory, we may expect aid to India to have good impact on the poor, because (1) good absorption capacity and democratic government (2) no aid dependency or diminishing returns to aid From this perspective, aid to India may be more efficient than aid to some African countries Difficult to confirm empirically because of lack of rigorous synthesis evaluations Robrecht Renard 7

University of Antwerp slide 8 5. Optimal mix of policy instruments Aid just one of many policy instruments of rich countries that affect prospects of poorer countries –Aid is effective but not very efficient (for political and institutional reasons on both donor and recipient sides) Other instruments may be more efficient for recipients, and less costly for donors –Trade, macroeconomic policies, financial supervision, immigration policies, etc can have powerful effect on development But it depends on country –Non-ODA policies very important for India –Aid is more important for Burundi Robrecht Renard 8

University of Antwerp slide 9 6. Public Goods Equity dictates that developed countries contribute proportionally more –Some of this financing is ODA eligible Some of this financing concerns country- focused programmes –Fighting HIV/AIDS, other contagious diseases –Bio-diversity and climate change related actions –Fostering cross-border knowledge transfers –Preventing state failure and regional conflict,… Application to India: south-south scientific cooperation, global warming Robrecht Renard 9

University of Antwerp slide Conclusion It is difficult to say whether in general aid to India has been effective and efficient But its impact has been marginal because of its modest relative size –As in China, success is due to domestic policies More aid may be justified –Large number of poor people –Efficiency may be higher than elsewhere –Yet other policy instruments will probably be more efficient But more official aid is an unlikely scenario –Because of the reluctance on part of India and donor countries alike Robrecht Renard 10