Foreign Aid

Topics: Aid, Development aid, Development Assistance Committee Pages: 51 (15975 words) Published: June 22, 2013



M.G. Quibria*
April 2010

*M.G. Quibria is Professor, Department of Economics, Morgan State University, Baltimore, MD 21239; and Distinguished Fellow, Policy Research Institute of Bangladesh, Dhaka, Bangladesh.



The literature on aid effectiveness is rife with controversies. There is a voluminous empirical literature based on cross-country regressions, which has produced more confusions than robust conclusions. In addition, this literature has little or nothing to contribute when it comes to individual countries. Recent years have seen the emergence of a burgeoning empirical literature based on the method of randomization. The method has been criticized for its narrow focus. It cannot tell us “what works’ in development, to design policy, or to advance scientific knowledge about development processes.” It has also been opined that it cannot be the basis for a cumulative research program that might progressively lead to a better understanding of development”. Moreover, it provides little guidance on aid effectiveness at the macro level. However, in the real world, people need to draw conclusions about aid effectiveness and make policies. Given the manifest failures of the so-called rigorous empirical methods to yield useful insights, the present study takes a more qualitative approach to aid effectiveness. Taking Bangladesh as a case, it undertakes an in-depth country study and exploits the available qualitative and quantitative information. This paper uses a qualitative triangulation approach based on the subjective judgments of donors and recipients to assess aid effectiveness in Bangladesh. It focuses on the contributions of three major, high-profile donors: the World Bank, the Asian Development Bank (ADB), and the Government of Japan (GOJ).

The paper begins with a discussion of the importance of foreign aid to Bangladesh as it has evolved over time. This is followed by a critical evaluation of the economic and social impact of aid based on both donors’ and the recipients’ assessments. The paper then discusses the causes of aid ineffectiveness. As this theme has a wider resonance beyond Bangladesh, the discussion next turns to the experiences of the developing world as a whole. Recommendations for


making aid more effective aid follow, and the paper ends with some concluding remarks about the future role of foreign aid in Bangladesh.

An earlier version of this study was prepared for the Bangladesh Development Studies Golden Jubilee Conference on Development Prospects of Bangladesh: Emerging Challenges, Dhaka, and December 2–3, 2007. The current version is an updated and expanded version of the earlier paper. The author would like to acknowledge, without implicating in the errors and shortcomings of the paper, the helpful comments from Zahid Hossain, Tetsu Ito, Kazi F. Jalal, Antu Murshid, Nurul Islam, Masihur Rahman, Nasreen Quibria , Salim Rashid and Quazi Shahabuddin on the earlier version of the paper. The paper also benefitted from the comments from the participants of a seminar in March 2010 at the School of International Affairs, New School, New York. Finally, Joena Abrenica provided excellent assistance with data and graphics.



LIST OF TABLES AND FIGURES ................................................................................................ 5 INTRODUCTION ..................................................................................................................... 6 THE ARITHMETIC OF AID FLOWS .......................................................................................... 10 ECONOMIC AND SOCIAL CHANGES SINCE INDEPENDENCE .................................................... 19 DONORS’ EVALUATIONS ...................................................................................................... 23 The World Bank...

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