The Economic Impact and Effectiveness of Development Aid - Economic Affairs Committee Contents

The Economic Impact and Effectiveness of Development Aid

CHAPTER 1: Introduction

1.  This report is about development aid. It examines how effective aid has been in promoting development in recipient countries, including those affected by conflict. It does not address humanitarian aid for relief of acute distress following conflict, famine, natural disasters or other emergencies. Humanitarian aid, which we fully support, accounts for less than 10% of global aid flows.

Definition of Aid

2.  Throughout this report "aid" is defined as net official development assistance (ODA) from member countries of the OECD Development Assistance Committee (DAC) to eligible recipients.[1] Net ODA consists of grants and concessional loans provided by official agencies in donor countries[2] that are disbursed with the intention of promoting economic development. Under this definition, aid includes technical assistance, debt relief, and transfers to multilateral agencies. It excludes military and direct peacekeeping assistance but includes some 'peace and development' activities such as those funded by DFID's contribution to the Conflict Pool.

3.  This report focuses on development aid which is over nine-tenths of official aid spending. It is not about humanitarian aid, which accounts for less than 10% of official aid spending. We fully support humanitarian aid.


Aid by intended use: All DAC donors 2010 (Total aid = US$128.5 billion)

Source: OECD Development Assistance Committee Statistics on Resource Flows to Developing Countries Table 19

4.  The report looks in particular at British aid policy and programmes and the approach of the Department for International Development (DFID) under the Coalition Government. It examines the case for the substantial increases in the aid budget planned by the Government to reach the UN target of spending 0.7% of Gross National Income (GNI) on aid by 2013.[3] It questions the Government's commitment to make compliance with the UN target a legally binding requirement, uniquely in the UK. It examines what impact the British aid programme is making on economic development in recipient countries, how well the money is spent and how robust are defences against corruption and fraud. It also examines DFID's priorities including the planned increase in spending in fragile states affected by conflict.


Aid by intended use: United Kingdom 2010 (Total aid US$13.1 billion)

Source: OECD Development Assistance Committee Statistics on Resource Flows to Developing Countries Table 19

1   There are 24 DAC members (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Japan, Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA and the EC) and 152 eligible recipients, some of whom may be non-DAC donors in their own right, for example, India, China and Brazil. Back

2   Concessional means a grant element of at least 25%. A concessional loan can be thought of as equivalent to a commercial loan plus a pure grant.


3   Adopted in 1970. In 1968, Robert McNamara, President of the World Bank, asked former Canadian Prime Minister Lester Pearson to review aid effectiveness since World War II and make recommendations for the future. A central recommendation of the Pearson Commission, subsequently endorsed by the UN General Assembly in 1970, was that to meet the financing needs of the poorest countries, an ambitious target of 0.7% of the GNI of the economically advanced nations should be allocated to aid by 1975. The Commission also recommended a target for total aid (official aid plus other official flows plus private concessional flows) of 1% on GNP to be achieved by 1972 and no later than 1975. Neither target was achieved. The UN re-launched the 0.7% target at the UN Financing for Development conference in Monterrey, Mexico in 2002 (it was at this meeting that the Millennium Development Goals were formally endorsed). During the run-up to the G8 summit in Gleneagles in 2005, the EU Members States pledged to achieve the 0.7% target by 2015. Back

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