Hi there. In the last video, we saw how in the 1990s state failure emerged as a policy concern and we looked at two attempts to measure it. In this video, we're going to examine the question, who gives aid to whom and why? This was the title of an article published by Alberto Alesina and David Dollar back in 2000. Back then, I liked the title so much that we used it as the title of a conference on the history of foreign aid that we held right here in Leiden. And we'll concentrate our analysis on official development aid. Official aid is aid given by governments, doesn't cover aid donated directly from citizens. And development aid is quite distinct from humanitarian aid, which is directed at famine relief and refugee assistance. Now, Alesina and Dollar took the aid data covering the period from the early 70s to the early 1990s. And compared the direction of aid flows with several other variables. These included trade openness, democracy, civil liberties, colonial status, foreign direct investment. Per capita income at the start of the period, voting patterns in the UN, and the position in the Middle East. There are some criticisms we could make of the variables, themselves. Some of them were crude, and others are suspect. And if you really want to take your GDP PPP estimate seriously in 1970, then you have to note that the price comparisons in that year were based on a grand total of only ten countries. So what did they discover? Well, the results were heavily influenced by the fact that three-quarters of the aid is from just five countries, the United States, Japan, France, Germany and the UK. What Alesina and Dollar tried to do was to see how far the aid flows divulged from expected distribution. They suggested that being open and democratic were good. If you are open, it would result in 20% more aid. And being democratic, would increase your aid flow by almost 40%. More important still was to have a long colonial past, this increased the aid flow by 87%. In fact, being a non-democratic colony received more aid than the democratic non-colony. The same held true for openness. Countries voting in the United Nations with Japan received a massive 172% more aid. Interestingly enough, voting with the USA made no particular difference. But this was because the American aid flow was dominated by its involvement in the Middle East. If you were Egypt, you receive 480% boost in your aid flow. And being Israel was best of all, you received over 400 times the expected aid. On the basis of this analysis, Alesina and Dollar concluded that one reason why aid didn't seem to work was because aid flows would determine more by political and strategic considerations than with the promotion of political and economic reforms. Now that was all over a decade ago, and then the period still shaped overwhelmingly by the Cold War. There've been two recent articles published in 2011 and 2014 that follow the same question posed in the original Alesina and Dollar article. They've extended the period covered, and they've expanded the number of variables investigated. So how has the passage of time effected the conditioning of aid flows? Well, aid now does seem to flow more to the poorer countries. Countries with better human right record also get better rewarded, but not equally so. The flow of aid tends to follow trade flows, and the voting in the pact of the United Nations. And this suggest that the donor self-interest is still an important consideration. And finally, and this comes from the earlier analysis. Aid flows disproportionately to countries already receiving aid from other donors. There's a sort of darling effect, being able to attract aid helps reinforce the confidence of other donors in giving it. Now the most recent article published in, well, development in 2014 earlier this year. Focuses on changes in the conditions and perceptions in the donor countries rather than the situation in the recipients. What do they say? Well they suggests that as the donor countries themselves became richer, so the radar relative to their GDP tends to increase. They also found that aid patterns once established, tended not to alter much. And they explain this by a mixture of bureaucratic inertia, and the medium term nature of many of the projects, also a desire to be seen as a stable partner. Now this study rejected any darling effect. In fact, they suggested the opposite, namely that when one country was committed, the others tended to steer clear. Now this disagreement could be the result of a better coordination of aid efforts in the more recent period, as well as possibly some methodological differences. They found no support for a former colony effect, but again, this could be because the variables were radically different. And finally, and interestingly, they found no relationship whatever with the war on terror. Okay, let's sum up now, we've looked at the recent literature on aid allocation. All of these studies, you stand the techniques of multivariate regression analysis, so we've got no weird self-constructed embassies to contain with. Nevertheless, we have suggested some of the raw data is weak. So although the insights are interesting, they should be treated with caution. But there remains one big problem. The analysis is determined by the size of the aid flows, and therefore, effectively by the behavior of the big five donors. And their motivation is imputed from their perceived behavior. But while the big five are large aid givers, they're not generous aid givers. None of them gets close to the 0.7% of GDP aid target established by the United Nations. So in the next video, we're going to concentrate on the four countries that did reach that target, in the 1970s and early 1980s. And which, since then, have never fallen below it.
