Bilateral aid: Controversies
Bilateral aid is official development assistance that flows directly froma donor country government to a recipient country. This is in contrast to multilateral aid, in which many donor governments pool their contributions via intermediary institutions that then disburse aid to recipient countries. Yet another category is private aid that individuals, corporations, and foundations donate voluntarily, often through nongovernmental organizations (NGOs). Typically, bilateral aid accounts for two-thirds to three-quarters of all official aid; estimates of private aid put it at about one-tenth the size of official aid.
Although bilateral aid of one formor another is as old as the nation-state, themodern era of bilateral aid began withU.S. aid to reconstruct Europe under the Marshall Plan following World War II. Over time, governments of other major developed countries joined the United States in providing bilateral aid, sometimes following U.S. pressure to share the burden. In some cases, aid programs developed out of colonial administrations during the 1960s as more and more colonies became independent. In other cases, notably Japan, the bilateral aid program evolved from war reparation payments. A number of developing countries notably China, India, and Venezuela are also aid donors.
Bilateral aid is most often government-to-government, although in some circumstances donors may fund NGOs directly. Many aid donors are members of the Organisation for Economic Cooperation and Development (OECD). The Development Assistance Committee (DAC) of the OECD is the international body that sets aid reporting standards, monitors aid flows, and urges donors to improve the quality and quantity of their aid. The DAC’s main focus is on official development assistance (ODA), which it defines as official concessional flows for developmental purposes to low-income countries. This includes grants as well as loans that are at least 25 percent concessional as compared to a commercial alternative (35 percent for ‘‘mixed credits,’’ where aid is used to finance a commercial venture). Over the life of an ODA loan, repayments of principal and interest must be at least 25 percent lower than for a comparable commercial loan.ODA normally excludes grants and loans for military purposes and funds not directed to poor countries. In contrast tomultilateral aid,most bilateral aid is given as grants; Japanese aid is the exception. The DAC’s long-standing goal is for donors to contribute seventenths of 1 percent of gross domestic product (GDP) as ODA, though only a few of the most generous donors attain this target. In general, theUnited States has been the largest donor but among the least generous as a share of GDP. Under the Marshall Plan, U.S. aid was as high as 2 percent of GDP, but it has been one-tenth of that in recent times. France, Germany, and Japan also have been major donors, while the Netherlands and the Scandinavian countries have been the most generous DAC donors relative to their GDPs.
Bilateral aid can fund a specific project (project aid), providemore general budgetary support for the recipient government (programaid), or flowthrough an NGO. Although reconstruction aid to Europe was often program aid, bilateral aid to developing countries has more often been project aid. Since the 1980s, multilateral aid agencies, particularly the World Bank, have become heavily involved in program aid, which aims to promote policy and institutional reform in developing countries; most bilateral donors put less funding into program aid.
See also aid, international; aid, international, and political economy; HIV/AIDS; nongovernmental organizations (NGOs); political economy of policy reform; regional development banks; World Bank
- Burnside, Craig, andDavidDollar. 2000. ‘‘Aid, Policies and Growth.’’ American Economic Review 90 (4): 847 68. World Bank researchers present evidence in favor of greater aid selectivity; extremely influential even though the results were later shown to be fragile.
- Lancaster, Carol. 2007. Foreign Aid: Diplomacy, Develop ment, Domestic Politics. Chicago: University ofChicago Press. Provides an overview as well as a more detailed treatment of five major donors.
- Minoiu, Camelia, and Sanjay Reddy. 2007. ‘‘Aid Does Matter, After All: Revisiting the Relationship between Aid andGrowth.’’ Challenge 50 (2): 39 58. Summarizes the literature on aid and growth and presents evidence that the long run impact of developmental aid on growth is large and positive regardless of the policy en vironment.
- Organisation for Economic Co operation and Develop ment. Yearly. Development Cooperation Report. Paris: OECD. Downloadable fromhttp://www.oecd.org/dac. Information on aid issues, statistics, and practices.
- Radelet, Steven. 2006. ‘‘A Primer on Foreign Aid.’’ Center for Global Development Working Paper 92. Down loadable from http://www.cgdev.org/content/publications/detail/8846. Readable overview of foreign aid his tory and issues, including bilateral and multilateral aid.
- Tendler, Judith. 1975. Inside Foreign Aid. Baltimore: Johns Hopkins University Press. Classic treatment of institu tional biases reducing the effectiveness of aid. Uses evi dence from U.S. bilateral aid programs.