The Effectiveness of Foreign Aid in Developing Countries: An Exploratory Review

Edmore Mahembe and Nicholas Odhiambo

No 25342, Working Papers from University of South Africa, Department of Economics

Abstract: The aim of this paper is to examine whether official development assistance (ODA) or foreignaid has made developing countries worse off as alleged by a number of aid critics. ODAdisbursement to developing countries increased almost five-fold; from around US$36 billionin 1960 to US$176 billion in 2016. The study found that between the period 1970 and 2017: (i)a total of 17 countries have been added to the ODA list, (ii) 60 countries have graduated fromthe list, mainly due of increases in their per capita incomes; (iii) out of these 60 graduates, 45graduated between 1991 and 2018; and (iv) it is projected that another 24 countries andterritories will graduate by 2030. This suggest that, overall, a number of countries haveprospered over the years, and have therefore not been made worse by foreign aid. Globalpoverty, represented by headcount poverty rates (at US$1.90 a day) have been decreasingconsiderably from around 44 percent in 1981 to less than 10 percent in 2015.

Keywords: Effectiveness of foreign aid; aid effectiveness literature (AET); graduation from official development assistancee(ODA); developing countries; millenium development goals (MDGs); sustainable development goals (SDG); povery reduction (search for similar items in EconPapers)
Date: 2019-01
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