Development Aid

Levels of development differ across the world. Some countries are considered highly developed, whilst others, are significantly less so. These countries that are less developed often need support economically, politically socially, and even environmentally, in the form of development aid. But what exactly is development aid? What agencies are responsible for providing it? Are there different types of development aid? Read on to find out more.

Development aid definition

The idea of aid can be understood as providing help to those that need it. Combine that with development, and we have development aid. But what exactly is the definition of development aid?

Fig. 1 - Development aid as a share of government expense

Fig. 2 - Government aid as a share of GNI, 2020

Development Aid agencies

Development aid can be provided by different agencies. Let's example a few of these.

1. Non-governmental organisations (NGOs): Non-profit organisations are independent of a government, typically focussing on social and economic issues.

These include development charities such as Oxfam and Hand in Hand for aid and development. These organisations will distribute humanitarian aid, reconstruct infrastructure and implement sustainable livelihood programs. For instance, in Syria, these organisations provide essential goods and services such as clean water and clothes.

2. Intergovernmental organisations (IGOs): Organisations made up of two or more sovereign states working together through formal and legal arrangements such as a treaty.

3. Governments of developed countries: This includes the UK government, the first G7 country that made it mandatory to pledge 0.7% of its GNI annually to development aid. This figure of 0.7% derives from the UN General Assembly in 1970.

Types of development aid

There are different types of development aid. Development aid can be either bilateral or multilateral. Let's split these up.

Bilateral aid

This is when aid is given from developed countries to developing countries directly without intermediate agencies.

This can also be known as “tied” aid as the country receiving aid may have conditions attached, usually trade-related, such as being obliged to buy their good or services in return. Donor countries may prefer this as it gives more control over where the financial aid goes and encourages long-term trade relationships with recipient countries.

Multilateral aid

This is aid from multiple donor countries, which will go to an intermediate agency or an IGO such as the World Bank, which will administer the money to the developing country.

The developing country may prefer this because the intermediate is less likely to be pursuing their own political interests, meaning fewer ties and conditions for the country receiving aid. In addition to this, IGOs will be able to pool resources, increasing cost-effectivity, especially for larger projects.

Development aid projects

For an example of a development aid project, we're going to take a look at Haiti.

Background: Haiti is an island in the Caribbean Sea and is at risk of multiple natural hazards, mainly earthquakes and hurricanes. Its relatively poor population and low HDI, ranking 163 out of 188, gives Haiti the nickname of “the republic of NGOs”. The Haitian earthquake in 2010, which killed over 220,000, led NGOs, IGOs, and governments across the world to respond with aid.

NGOs:

• Oxfam responded by providing clean water, shelter, and sanitation immediately following the earthquake. Their focus soon shifted to funding rebuilding efforts and growth projects
• The Red Cross sent hundreds of personnel on the ground and established field hospitals

• The World Bank has further provided an amount of US$100 million to support Haiti’s recovery and reconstruction following the earthquake
• The EU had pledged €122 million in humanitarian assistance with €30 million in an emergency relief package

• The US government contributed US$1.3 billion in humanitarian assistance as well as a further US$2.2 billion in recovery, reconstruction, and development projects³. USAID (US Agency for International Development) has continued to support long-term development by promoting economic growth, job creation, agricultural development, and education services. In 2020 alone, USAID secured 1,900 hectares with improved management technologies in agriculture⁴
• The UK donated US$10 million as well as pledging another US$22 million in aid

Development Aid economics

We can think about development aid economics through the idea of trade. One method of donor countries giving aid is through trade, or, “aid for trade”. This bilateral aid will promote diplomatic relations between the two countries to trade their goods and services, which will open the developing country to advance their economies. A lot of low-income countries will lack the infrastructure and ability to compete in a global market. Having access to this market can allow the country to import and export goods and services, consequently encouraging more manufacturing, innovation, employment, and even potentially establishing comparative advantages. All of this ultimately allows the country to improve its economic resources and develop a better quality of life for its citizens.

The World Trade Organisation (WTO) helps developing countries to trade globally through:

1. Creating trade strategies.
2. Offering the knowledge to be able to negotiate for better transactions.
3. Assisting the countries to develop better infrastructure like roads, ports, and communication systems. This will allow more efficient transport for goods and services to trade.