For more than 30 years, studies have been conducted which have examined and tried to assess the overall contribution that official aid has made to economic, growth, development and poverty reduction across a range of aid recipient countries. The question whether or not foreign aid enhances economic growth and efficiency in resource use has long been debated. Burnside and Dollar (2000) and Brautigam and Knack (2004) find evidence for negative impact of foreign aid and growth. Mosley (1980), Mosley, et al. (1987), Boone (1996), and Jensen and Paldam (2003) find evidence to suggest that aid has no impact on growth. Burnside and Dollar (2000) concluded that foreign aid has positive effects; this conclusion applies only to economies in which it is combined with good fiscal, monetary, and trade policies. More recent study by Doucouliagos and Paldam (2009), found that the effect of aid on growth estimates scatter considerably and add up to a small positive but insignificant effect on growth. The impact of aid on growth has been comparatively small; a sustained contribution of aid of about 10% of Gross Domestic Product (GDP) raises GDP levels of the recipient country by about 1%.
In development aid, the priority is given to short-term, tangible and measurable results of the project. Evidence from recent studies, suggests that aid focused on short-term and visible interventions is not merely resulting in less aid being used for marked changes, but that it is adding to systemic problems to recipient country and holding back long-term poverty reduction. World Bank study argues that when donors rely on their own systems to deliver aid, the effect of the aid undermines the recipient-country systems. Research from the Overseas Development Institute suggests that unless and until recipient countries have acquired development leadership, aid tends to have negative effects. In terms of impact or sustainability of the aid project measured by immediate project success doesn’t necessarily mean permanent success. The numbers of projects that are not sustainable still remain high as studies from mid-2000 data suggested that when looked at over time project success rate could fall below 60%. According to Global Monitoring Report (2011), the recent increase in aid had not led to achieve the expected improvement in outcomes of the aid projects, but also there is a grave concern of the quality of outcomes.
A major component of aid is provided as technical assistance by training poor country nationals as well as provides activities which aimed to strengthen institutions and enhancing local capacities. Aid has generally not been successful in its efforts to build capacities, encourage the retention of high level skills and strengthen public institutions in a sustainable manner. The World Bank has acknowledged that its efforts in the area of capacity building, especially in Africa have been extremely disappointing by not producing desired results. Recent studies concluded that there is very little evidence that aid projects such as providing micro-credit to the communities result in long-term increase in the income of the recipient, or in long term elevating poverty . Development assistance programmes undertaken in crisis or fragile states without understanding the political settlement on which a state rests can lead to unintended consequences. An OECD report study of international support for state-building in fragile states argues that donors risk doing harm by failing to provide support for the creation of capacity to expand productive activities in these states.
The economic, trade and financial policies deployed by donor countries to the recipient country holds back or undermine the pace of aid-recipient country development. The aggregate effect of these policies can easily outweigh the benefits which aid brings. Evidence of the failure of using aid to support recipient-led development processes through such policies is seen in relation to the issue of country ownership. By the year 2010, fewer than two (5%) aid-recipient countries were reported to have in place their own sustainable development strategies. In 30% of aid receiving countries, there was no local ownership and nothing had happened in the interim period to encourage and support local ownership.
Some concrete examples of the misappropriation of emergency aid in academic studies of aid have surfaced. In one instance in the Democratic Republic of Congo (DRC) up to 85% of the aid provided failed to reach to the beneficiaries. Other evidence has suggested that both humanitarian and development aid has, inadvertently extended and deepened corruption in societies in which it has been provided . Major misappropriations of emergency aid funds are not only found in the developing world but also in the developed countries. A United States Government report (2006) analysing the use of public funds provided to the survivors of Hurricane Rita and Katrina in New Orleans estimated that some 16% ($1.4bn) of funds had been lost to fraud .
...(download the rest of the essay above)