Returning to first principles – why give aid to some countries and not to others?

The debate over whether the UK should continue providing development assistance to India is not new, but it has become a lightning rod for those who argue that the UK aid programme has lost its way. In reflecting on the specifics of the case it is worth reminding ourselves about some of the broader arguments about aid allocation.

Taken as a whole, the global allocation of aid is very inequitable. There are many poor countries receiving less aid than better-off countries. And there are many countries that are as poor as each other, yet receive wildly differing levels of aid. Post-conflict and fragile economies, in general, receive less aid, while sub-Saharan African countries do better than South Asian countries, even though the latter account for a greater share of global poverty than the former. All of this is a drastic divergence from the theory which states that more aid should go to countries where there is more poverty and where it will have the greatest impact on poverty levels, or where there is a more favourable policy environment for growth, and where evidence shows that this growth does reduce poverty ( Collier and Dollar 2001, 2002 ). So why does aid allocation in reality diverge so markedly from the theory? I would suggest four key reasons.

  • First, despite the stated commitment to global poverty reduction, donors provide aid for multiple reasons, some poverty related, some not. Aid allocations across and within countries vary greatly according to these differing donor objectives. 
  • Second, while donors like the UK are committed to poverty reduction, not all agree on how best to measure and target poverty. So a country doing well on one or more dimension of poverty but less well on others may be treated quite differently by different donors. Some donors target poor people, others, like DFID, target poor countries – the two overlap but not always, leading to different allocations.
  • Third, as argued by Wood (2007) , donors and their citizens are concerned not only about poverty today, but also about poverty in the future. As a result, aid is often allocated to poor countries where progress on poverty is slow today, in the expectation that a faster rate of poverty reduction will be achieved in the future. Few, if any, models of aid allocation take into account predicted poverty levels, as opposed to current levels.
  • Finally, there is the ‘herding' behaviour of donors. When a country is perceived to be doing the right things, donors tend to crowd in. While there are often pragmatic reasons for herding, among them economies of scale and information, the decision to do so can leave other equally deserving countries with less aid than is optimal, based on their level of need or indeed their capability to use it well ( OECD (2009). This behaviour lies behind the phenomenon of ‘donor darlings' and ‘donor orphans'.

So where does this leave the debate about UK aid to India? First off, it suggests that the case of India should not be considered as distinct from the broader challenge of achieving a more poverty-efficient global allocation of aid. Second, it suggests that the new UK government should be working hard to establish some core principles for the allocation of its bilateral assistance before making decisions about individual countries. Thirdly, there are important ways in which aid allocation models could be nuanced to reflect the challenge of development in practice, from less reliance on simple (and often arbitrary) income categories (low-income and middle-income), to a stronger focus on the depth and severity of poverty as a key indicator of vulnerability, to a better assessment of risk, such as the risk of conflict but also the risk to development associated with systemic crises and external events.

In the end, the approach taken by the UK to the allocation of its assistance must be transparent and evidence-based, and able to stand above the fray of those who would make a political football out of the aid programme.

19 July 2010
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