Are the Planned Increases in Aid Too Much of a Good Thing?

32 Pages Posted: 29 Apr 2007

Date Written: July 2006

Abstract

Donor countries have committed themselves to increase aid to developing countries by 60 percent over the next five years; and larger increases would be needed to meet the Millennium Development Goals (MDGs). But there are concerns that there may be a limit on the amount of aid that developing countries can absorb and use effectively - and that large aid flows might even be harmful. Could a large increase in aid be "too much of a good thing?" This essay disentangles the seven possible reasons why additional aid might not be effective. These include microeconomic effects (e.g., transactions costs), macroeconomic effects (e.g., 'Dutch Disease') and the impact on political economy (e.g., the 'Resource Curse'). The paper looks at each possible constraint in turn. The paper finds that there are indeed serious obstacles to effective use of increased aid, but that none is immutable. All of the constraints which limit the effective use of additional aid can be addressed by a relatively small set of practical improvements in the way that aid is provided and used. Donors have already committed themselves to a significant program of aid reform. If the measures to which donors are committed were consistently implemented, the seven constraints to effective aid absorption could be relaxed. The paper concludes that, provided increased aid is accompanied by reforms to the way aid is delivered, the capacity of developing countries to absorb and use aid should not be presented as a barrier to the increases in aid which would be needed to meet the MDGs.

Keywords: Aid Effectiveness

JEL Classification: E01, D23, O0

Suggested Citation

Barder, Owen Matthew, Are the Planned Increases in Aid Too Much of a Good Thing? (July 2006). Center for Global Development Working Paper No. 90, Available at SSRN: https://ssrn.com/abstract=983126 or http://dx.doi.org/10.2139/ssrn.983126

Owen Matthew Barder (Contact Author)

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
114
Abstract Views
726
rank
328,533
PlumX Metrics