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Foreign aid: its speckled past and future prospects

Published online by Cambridge University Press:  22 May 2009

Charles R. Frank Jr  and
Mary Baird
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Extract

At the present time, the political popularity of foreign assistance, both bilateral and multilateral, has reached a low point in the United States. The lack of enthusiasm is epitomized by the vote of the House of Representatives in January 1974 against the United States's pledge of $550 million to support the International Development Association (IDA), the soft-loan subsidiary of the World Bank (even though that vote was subsequently reversed). Total US commitments of official development assistance have declined from 0.59 percent of GNP in 1963 to 0.29 percent in 1972.

Type
Section II
Information
International Organization , Volume 29 , Issue 1 , Winter 1975 , pp. 133 - 167
Copyright
Copyright © The IO Foundation 1975

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References

1 Organization for Economic Cooperation and Development, Development Cooperation: Efforts and Policies of the Members of the Development Assistance Committee (Paris: Organization for Economic Cooperation and Development, 1973), p. 189Google Scholar.

2 Ibid.

3 See “The Policy of Self-Reliance-Excerpts from Part III of the Arusha Declaration of February 5, 1967”, Africa Report 12 (03 1967): 11–13Google Scholar; and Bienen, Henry, “An Ideology for Africa”, Foreign Affairs 47 (04 1969): 545–59Google Scholar.

4 See “India Seeking Renewal of U.S. Economic Aid”, Washington Post, 5 April 1974.

5 See Sunkel, Osvaldo, “Big Business and ‘Dependencia’: A Latin American View”, Foreign Affairs 50 (04 1972): 517–31CrossRefGoogle Scholar.

6 See “India Seeking Renewal of U.S. Economic Aid”, Washington Post, 5 April 1974.

7 Ohlin, Goran, Foreign Aid Policies Reconsidered (Paris: Organization for Economic Cooperation and Development, 1966), pp. 9Google Scholar, 15.

8 See Colago, Francis X., Economic and Political Considerations and the Flow of Official Resources to Developing Countries (Paris: Organization for Economic Cooperation and Development, 1973)Google Scholar.

9 As defined by the Development Assistance Committee of the OECD in Development Assistance: Efforts and Policies of the Development Assistance Committee (Paris: Organization for Economic Cooperation and Development, 1969), pp. 241–43Google Scholar.

10 OECD, Development Cooperation: Efforts and Policies of the Members of the Development Assistance Committee, 1973, p. 181.

11 For a much more extended discussion of Japanese aid programs, see Caldwell, Alexander, “The Evolution of Japanese Economic Cooperation, 1950–1970”, in Malmgren, Harald B., ed., Pacific Basin Development: The American Interests (Lexington, Mass: D.C. Heath & Co. for the Overseas Development Council, 1972), pp. 23–60Google Scholar.

12 For a detailed analysis of the Israeli aid programs, see Laufer, Leopold, Israel and the Developing Countries: New Approaches to Cooperation (New York: The Twentieth Century Fund, 1967)Google Scholar.

13 A good discussion of the Soviet aid program is contained in Goldman, Marshall I., Soviet Foreign Aid (New York: Praeger, 1967)Google Scholar.

14 For an historical account of the World Bank group, see Mason, Edward S. and Asher, Robert E., The World Bank Since Bretton Woods (Washington, D.C.: Brookings Institution, 1973)Google Scholar.

15 For a discussion of regional development banks, see White, John, Regional Development Banks (New York: Praeger, 1972)Google Scholar.

16 Formally, the World Bank group is part of the UN system, but in practice it is quite autonomous. For a comprehensive analysis of the economic and social functions of the UN system, see Elmandjra, Mahdi, The United Nations System: An Analysis (Hamden, Conn: Archon Books, 1973)Google Scholar.

17 For further analysis of these banking institutions and funds, see White, Regional Development Banks; and John White, Promotion of Economic Integration Through Development Finance Institutions: Three Cases, forthcoming; also see Jones, David, Europe's Chosen Few: Policy and Practice of the EEC Aid Programme (London: Overseas Development Institute, 1973)Google Scholar.

18 Countries or subregions are: Colombia, East Africa, Ethiopia, Ghana, Guyana, Indonesia, Korea, Malaysia, Morocco, Nigeria, Peru, the Philippines, Sri Lanka, Sudan, Tunisia, and Zaire. Formal meetings for ten of these were conducted in fiscal 1973.

19 For further discussion of consortia and consortialike institutions, see White, John, Pledged to Development: A Study of International Consortia and the Strategy of Aid (London: Overseas Development Institute, 1967)Google Scholar; OECD, Development Assistance: Efforts and Policies of the Development Assistance Committee (Paris: Organization for Economic Cooperation and Development, 1971), pp. 131–36Google Scholar; and OECD, Development Cooperation: Efforts and Policies of the Members of the Development Assistance Committee, 1973, pp. 60–61Google Scholar.

20 The development activities of the OECD are described in Esman, Milton J. and Cheever, Daniel S., The Common Aid Effort; the Development Assistance Activities of the Organization for Economic Cooperation and Development (Columbus: Ohio State University Press, 1967)Google Scholar.

21 For the deflators used to perform these calculations, see OECD, Development Assistance: Efforts and Policies of the Development Assistance Committee (Paris: Organization for Economic Cooperation and Development, 1973), p. 176Google Scholar.

22 See Cline, William R., “The Role of Multilateral Lending Institutions in Development Finance”, paper presented to the Society of Government Economists, New York, 28 12 1973, pp. 3–4Google Scholar.

23 United States Department of State, “The Scope and Distribution of United States Military and Economic Assistance Programs”, report to the President of the US from the Committee to Strengthen the Security of the Free World (Clay Report), 20 03 1963Google Scholar.

24 For a full development of these arguments, see Millikan, Max F. and Rostow, Walter W., A Proposal; Key to an Effective Foreign Policy (New York: Harper & Brothers, 1957)Google Scholar.

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26 Goldman, Marshall I., Soviet Foreign A id (New York: Praeger, 1967), p. 168Google Scholar.

27 Millikan and Rostow, A Proposal; Key to an Effective Foreign Policy; Morganthau, Hans, “A Political Theory of Foreign Aid”, American Political Science Review 56 (06 1962): 301–9Google Scholar; Banfield, Edward C., American Foreign Aid Doctrine (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1963)Google Scholar.

28 Mikesell, Raymond F., The Economics of Foreign Aid (Chicago: Aldine Publishing Co., 1968)Google Scholar.

29 Charles R. Frank, Jr., estimates that without foreign savings between 1960 and 1970, Korean GNP in 1971 would have been about one-third less. Foreign savings constituted about 10 percent of Korean GNP during the decade of the sixties. In the early sixties, the bulk of the foreign savings was due to aid but commercial capital began to predominate in the late sixties. See Frank, , Foreign Trade Regimes and Economic Development: South Korea (New York: National Bureau of Economic Research, 1975 [forthcoming])Google Scholar, chapter 7. Neil H. Jacoby estimates that US aid to Taiwan probably doubled the rate of growth of GNP between 1951 and 1965. See Jacoby, , U.S. Aid to Taiwan (New York: Praeger, 1966), pp. 150–73Google Scholar.

30 See: Griffin, Keith B., “Foreign Capital, Domestic Savings and Economic Development”, Bulletin; Oxford University, Institute of Economics and Statistics 32 (05 1970): 99–112Google Scholar; Rahman, Anisur, “The Welfare Economics of Foreign Aid”, Pakistan Development Review 7 (Summer 1967): 141–59Google Scholar; Weisskopf, Thomas E., “The Impact of Foreign Capital Inflow on Domestic Savings in Underdeveloped Countries”, Journal of International Economics 2 (02 1972): 25–38Google Scholar; Houthakker, Hendrik S., “On Some Determinants of Saving in Developed and Underdeveloped Countries”, in Robinson, E. A. G., ed., Problems in Economic Development, proceedings of a conference held by the International Economic Association, London (New York: St. Martin's Press, 1965), pp. 212–24Google Scholar; and Griffin, Keith B. and Enos, John L., “Foreign Assistance: Objectives and Consequences”, Economic Development and Cultural Change 18 (04 1970): 313–27Google Scholar.

31 See Weisskopf; Bauer, Peter T., Dissent on Development; Studies and Debates in Development Economics (Cambridge, Mass.: Harvard University Press, 1972), pp. 95–135Google Scholar; and Hirchman, Albert O., How to Divest in Latin America and Why, Essays in International Finance, no. 76 (Princeton N.J.: Princeton University, 11 1969), pp. 4–6Google Scholar.

32 On the costs of tied aid, see: Bhagwati, Jagdish, “The Tying of Aid”, UNCTAD Secretariat, New York, 1966Google Scholar, reprinted in UNCTAD Conference Proceedings (New Delhi), Problems and Policies of Financing, vol. 4 (New York: United Nations, 1968), pp. 45–71Google Scholar; Hutcheson, Thomas L., The Cost of Tying Aid: A Method and Some Colombian Estimates, Essays in International Finance, no. 30 (Princeton, N.J.: Princeton University, 03 1972)Google Scholar; Haq, Mahbub ul, “Tied Credits-A Quantitative Analysis”, in Adler, John H., ed., Capital Movements and Economic Development (London: Macmillan & Co., 1967; New York: St. Martin's Press, 1967), pp. 326–59Google Scholar; Eshaq, Eprime, “Study of Excess Cost of Tied Economic Aid Given to Iran in 1966/67”, UNCTAD (UN Document TD/7/Supp. 8/Add., 2 12 1967)Google Scholar, and “Study of Tied Economic Aid Given to Tunisia in 1965”, UNCTAD (UN Document TD/7/Suppl. 8/Add., 8 November 1967). On loan terms and their effect, see Frank, Charles R. Jr, Debt and Terms of Aid (Washington, D.C.: Overseas Development Council, 1970)Google Scholar, reprinted in Frank, Jagdish N. Bhagwati, Robert d'A Shaw, and Harald B. Malmgren, Assisting Developing Countries, Problems of Debts; Burden Sharing, Jobs and Trade, Overseas Development Council Studies, I (New York: Praeger 1972).

33 Papanek, Gustav F., “The Effect of Aid and Other Resource Transfers on Savings and Growth in Less Developed Countries”, Economic Journal 82 (09 1972): 934–50Google Scholar; and Papanek, , “Aid, Foreign Private Investment, and Growth in Less Developed Countries”, Journal of Political Economy 81 (01/02 1973): 120–30Google Scholar.

34 Chenery, Hollis B. and Carter, N. G., “Internal and External Aspects of Development Performance”, World Bank Discussion Paper No. 141, 12 1972Google Scholar.

35 Frank, Foreign Trade Regimes and Economic Development: South Korea.

36 J. William Fulbright, The Arrogance of Power (New York: Random House, 1966)Google Scholar.

37 For a thorough analysis of the way United States aid officials have tried to influence policies in less developed countries, see Nelson, Joan M., Aid, Influence and Foreign Policy (New York: Macmillan Co., 1968)Google Scholar.

38 Schmidt, Wilson, “Default of International Public Debts”, The National Banking Review 2 (03 1965): 403–8Google Scholar.

39 In July 1974, for example, Brazil placed controls on soybean exports and many African and Asian countries control their exports of primary products through government-run marketing boards.

40 See, for example, Renewing the Development Priority, Implementation of the International Development Strategy: First Overall Review and Appraisal of Progress During the Second United Nations Development Decade, comments and recommendations of the Committee for Development Planning, Department of Economics and Social Affairs (New York: United Nations, 1973)Google Scholar; and OECD, Development Cooperation: Efforts and Policies of the Members of the Development Assistance Committee (Paris: Organization for Economic Cooperation and Development, 1972), pp. 31–37Google Scholar.

41 See Robert S. McNamara, Address to the Third UN Conference on Trade and Development, Santiago, Chile, 1972; McNamara, Address to the Board of Governors, International Bank for Reconstruction and Development, Nairobi, Kenya, 24 September 1973; and McNamara, , One Hundred Countries, Two Billion People (New York: Praeger, 1973)Google Scholar.

42 Francis X. Colaço, however, shows that at least as concerns distribution of bilateral aid among less developed countries, political considerations are the most important. See Colaço, Economic and Political Considerations and the Flow of Official Resources to Developing Countries.

43 World Bank/IDA, Annual Report 1973, p. 5Google Scholar.

44 Inter-American Development Bank, Annual Report 1972, p. 27Google Scholar; US Congress, House, Committee on Foreign Affairs, The United States and the Multilateral Development Banks (Washington, D.C.: US Government Printing Office, 03 1974), p. 68Google Scholar.

45 McNamara, One Hundred Countries, Two Billion People.

46 See Caldwell, “The Evolution of Japanese Economic Cooperation.”

47 See, for example: “U.S. Foreign Assistance in the 1970's: A New Approach”, report by the Task Force on International Development to the President of the US (Peterson Report), 4 March 1970; Asher, Robert E., Development Assistance in the Seventies; Alternatives for the United States (Washington, D.C.: Brookings Institution, 1970)Google Scholar; Ohlin; and Fulbright.

48 Cline, William R., Potential Effects of Income Redistribution on Economic Growth: Latin American Cases (New York: Praeger, 1972)Google Scholar; Reynolds, Clark W., “The Recent Evolution of Savings and the Financial System in Mexico in Relation to the Distribution of Income and Wealth”, paper prepared for the Workshop on Income Distribution and Its Role in Development, Rice University, the Program of Development Studies, 25 04 1974Google Scholar.

49 A particularly strident proponent of this view is Hayter, Teresa, Aid as Imperialism (London: Penguin Books, 1971)Google Scholar.

50 Statistical studies indicate that actual aid disbursements are not significantly correlated with performance or self-help efforts. The studies regressed aid flows against variables thought to be indicative of good performance. The independent variables used included: tax effort, savings effort, growth in the country's export earnings, inflation policy, the efficiency of resource use as measured by the incremental output/capital ratio, and the growth rate of GNP per capita. See Cline, William R. and Sargen, Nicholas P., “Performance Criteria and Multilateral Aid Allocation”, Washington, D.C., 1973Google Scholar (mimeographed); and Baird, Mary, Perkins, William, and Zook, Christopher, “The International Development Association: A Critical Analysis”, Williams College, Williamstown, Mass., 1973Google Scholar (mimeographed).

51 US Congress, House, Committee on Foreign Affairs, The United States and the Multilateral Development Banks, p. 68Google Scholar.

52 For an elaboration of these points, see Frank, Charles R. Jr, “Comment: Debt Adjustment; the Tyranny of Bankers, Brokers and Bondholders”, in Lewis, John P. and Kapur, Ishan, eds., The World Bank Group: Multilateral Aid and the 1970's (Lexington, Mass: D.C. Heath & Co., 1973)Google Scholar.

53 On the desirability of soft-term lending, see Frank, Debt and Terms of Aid; and Frank, Charles R. Jr, “Optimal Terms of Foreign Assistance”, Journal of Political Economy 78 (09/10 1970): 1106–14CrossRefGoogle Scholar.

54 For further discussion of the role of the World Bank as a development institution, see Mason and Asher, The World Bank Since Bretton Woods; Lewis and Kapur, The World Bank Group, Multilateral Aid and the 1970's; Reid, Escott, “McNamara's World Bank”, Foreign Affairs 5 (07 1973): 794–810Google Scholar; and Reid, Escott, Strengthening the World Bank (Chicago, III.: Adlai Stevenson Institute, 1973)Google Scholar.

55 For a discussion of a world food stock program and the costs of maintaining reasonable stock levels, see Schertz, Lyle P., “World Food: Prices and the Poor”, Foreign Affairs 52 (04 1974): 511–37CrossRefGoogle Scholar; and US Congress, Senate, Select Committee on Nutrition and Human Needs, “National Nutrition Policy: Report and Recommendations-VI”, prepared for the Panel on Nutrition and the International Situation, which argues for a food stock reserve program for the benefit of less developed countries only, but with costs borne by the developed countries.

56 SirJackson, Robert G. A., A Study of the Capacity of the United Nations Development System, 2 vols. (Geneva: United Nations, 1969)Google Scholar.

57 Congressional Quarterly 32, no. 4 (Washington, D.C.: US Government Printing Office, 26 01 1974), p. 154Google Scholar.

58 Laudicina, Paul A., World Poverty and Development: A Survey of American Opinion, monograph no. 8 (Washington, D.C.: Overseas Development Council, 10 1973), pp. 34–35Google Scholar.

59 Thorp, William L., “Foreign Aid: A Report on the Reports”, in Hunter, Robert and Rielly, John E., eds., Development Today: A New Look at U.S. Relations with Poor Countries (New York: Praeger, 1972)Google Scholar.

60 Ronald I. McKinnon has argued against heavy reliance on support of this kind on the grounds that such support provides an incentive to delay necessary adjustments in the structure of production and demand. Obviously, if the financial support is excessive, none of the necessary changes in production and demand will take place, but a carefully designed support program can permit less costly, smoother, and more efficient adjustment to occur in the poor countries. See McKinnon, , Money and Capital in Economic Development (Washington, D.C.: Brookings Institution, 1973), pp. 170–72Google Scholar.

61 See OECD, Development Assistance: Efforts and Policies of the Development Assistance Committee, 1971, pp. 100–102Google Scholar; and OECD, Development Cooperation: Efforts and Policies of the Members of the Development Assistance Committee, 1973, pp. 54–151Google Scholar.

62 Samuel P. Huntington, “Foreign Aid: For What and for Whom?”, in Hunter and Rielly, eds., Development Today; A New Look at U.S. Relations with Poor Countries.