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The Questionable Economics of Development Assistance in Africa: Hot-Fresh Evidence, 1996–2010

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The Review of Black Political Economy

Abstract

This paper assesses the aid-development nexus in 52 African countries using updated data (1996–2010) and a new indicator of human development (adjusted for inequality). The effects of Total Net Official Development Assistance (NODA), NODA from the Development Assistance Committee (DAC) and NODA from Multilateral donors on economic prosperity (at national and per capita levels) are also examined. The findings broadly indicate that development assistance is detrimental to GDP growth, GDP per capita growth and inequality adjusted human development. The magnitude of negativity (which is consistent across specifications and development dynamics) is highest for NODA from Multilateral donors, followed by NODA from DAC countries. Given concerns on the achievement of the MDGs, the relevance of these results point to the deficiency of foreign aid as a sustainable cure to poverty in Africa. Though the stated intents or purposes of aid are socio-economic, the actual impact from the findings negates this. It is a momentous epoque to solve the second tragedy of foreign aid; it is high time economists and policy makers start rethinking the models and theories on which foreign aid is based. In the meantime, it is up to people who care about the poor to hold aid agencies accountable for piecemeal results. Policy implications and caveats are discussed.

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Notes

  1. The imperialist origin of poverty is still widely debated. See Alam (2004).

  2. This debate on conditionality has recently intensified when the British and the U.S governments threatened to cut-off aid to African nations because of the prosecution of homosexuals in recipient countries. Many African government officials and activists have seen the threat as an insult to both African values and moral wellbeing.

  3. The debate extends to areas of external assistance like structural adjustment policies by the International Monetary Fund (IMF). There is substantially documented evidence that the IMF’s neoliberal policies have been perilous to South Korean development after the 1997 crisis (Crotty and Lee, 2002, 2006, 2009) and the main cause of the Argentinean crisis in the late 1990s and early 2000s (Levy and Duménil, 2006). Even recent findings from Africa suggest that the IMF’s structural adjustment policies may not have the investment effects in the future (Asongu, 2013a).

  4. A great chunk of the literature is based on data collected between 1960 and 1995. By using recent data (1996–2010), this paper provides an updated account of the nexus.

  5. Koechlin (2007) has recently reframed the debate by assessing three ambitious books (Sachs’s The End of Poverty, Bhagwati's In Defense of Globalization, and Easterly’s The Elusive Quest for Growth), and has concluded that, the insights and shortcomings of these three books remind us that the status quo is not working and that a rich understanding of globalization and development requires a serious consideration of alternative visions of each. Some new ways of theorizing development in light of the globalized systems of food production have included the USA led ‘genetically modified food aid’ to the Southern African region, which is widely criticized by the European Union (Herrick, 2008).

  6. We focus mainly on Africa where the aid-development debate is most tensed. While previous studies have mixed countries in various continental regions or focused on a restricted set of countries owing to constraints in data availability, this paper uses data from 52 of the 54 African countries.

  7. “Funding for a new road might affect economic activity in short order, funding for a vaccination campaign might only affect growth decades later, and humanitarian assistance may never affect growth” (Clements et al., 2004, p. 4).

  8. Multilateral donors are international organizations such the World Bank that provide development assistance. They also act as an agency for channeling funds between donor countries and recipient countries. There are 24 DAC members. They include Australia, Austria, Belgium, Canada, Denmark, European Union, Finland, France, Germany, Greece, Ireland, Italy, Japan, Korea, Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States.

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Acknowledgment

The author is highly indebted to the editor and referees for their constructive comments.

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  1. African Governance and Development Institute, Yaoundé, Cameroon

    Simplice A. Asongu

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Appendices

Appendix 1

Table 5 Summary statistics
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Appendix 2

Table 6 Correlation analysis
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Appendix 3

Table 7 Variable Definitions
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Appendix 4

Table 8 Presentation of countries
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Asongu, S.A. The Questionable Economics of Development Assistance in Africa: Hot-Fresh Evidence, 1996–2010. Rev Black Polit Econ 41, 455–480 (2014). https://doi.org/10.1007/s12114-014-9203-0

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