The Macro-Economic Effects of UK Aid Returning to 0.7 per cent of GNI

Dawn Holland () and Dirk Willem te Velde

No 535, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: The UK has recently reduced its foreign aid budget from 0.7 per cent of gross national income (GNI) to 0.5 per cent, with a view to going back to 0.7 per cent when the fiscal context allows, estimated to be in 2024/5. The provision of aid is motivated by a wide range of factors that include moral, historical, strategic and security reasons. The primary aim of this paper is to complement the broad existing literature that focuses on the social and ethical aspects of aid by exploring aid flows from a macroeconomic perspective. The analysis reveals that the decision to cut UK aid will provide negligible direct savings for the UK, comes at a cost to the UK economy, and poses significant humanitarian and social costs in many poor countries. Aid delivers good value for money. Every 00A31 spent on aid delivers at least triple its value in the aid recipient regions. In addition, when we take international spillovers of aid into account, well-directed aid delivers a net positive return to the donor countries. Every 00A31 of ODA that is restored over the period 2021/22-2023/24, can be expected to provide recipient regions with the equivalent of 00A32.98-00A35.31 in goods and services, and raise UK GDP by 1-13 pence. The estimates suggest that the decision to cut the UK ODA budget has cost in the range of 00A3322 million to 00A3423 million in lost UK exports, while up to 1.5 million more people in sub-Saharan Africa may suffer hunger as a result.

Keywords: Foreign aid; uk economy; humanitarian costs (search for similar items in EconPapers)
JEL-codes: E12 E60 F35 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-fdg and nep-mac
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