Fads,%20Fashions,%20Fluctuations%20and%20Functionality%20in%20Foreign%20Aid

1
Fads, Fashions, Fluctuations and Functionality in
Foreign Aid

• Robert W. Herdt
• 41st Annual Meeting of the Association for
  International Agriculture and Rural Development
• Washington, D.C., June 5-7, 2005

2
Fads, Fashions, Fluctuations and Functionality in
Foreign Aid

• Aid is beset by fads and fashions The
  Silver Bullet Syndrome
• Politically driven from the top Democracy
• Effectiveness and impact gt evaluation
• Functionality Does aid work?
• Does agricultural aid work? What kind?
• Need more agricultural aid that works!

3
Fluctuations Where does aid go? (from all OECD
countries)five year moving averages, million
2001
4
Where does aid go ?
Public services (Education, Health, Population, Water Sanitation, Government, Environmental)
Production (Transport Storage, Energy, Agriculture, Forestry, Fisheries, Industry, Mining)
Business services (Communications, Banking, Financial, Business, Trade, Tourism)
Macroeconomic adjustment (Structural adjustment, Debt relief)
Commodities (Food aid, other commodities)
Relief (relief food, Emergency Distress Relief)
Other multisectoral and unallocated
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Functionality Does aid work? (typical second
generation effectiveness study)
Savings
Other financial flows
GNP Growth rate
Growth of Exports
Aid
Mortality
Growth of Literacy
OPEC
Mortality change
GNP/capita Prior year
6
Functionality Meta-analysis of Impacton rate of
economic growth

• First generation studies few variables, single
  equations relating aid to savings
• 18 of 39 studies showed positive effects
• Second generation studies Many variables,
  several equations relate aid to growth
• 40 of 72 studies showed positive effects
• Third generation studies multiple equations
  many countries, many years many conditioning
  factors examined

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Functionality Third Generation Studies

• How is aid effectiveness conditioned by
• Policy (inflation, trade, exchange rate,
  government budget surplus, etc)
• Shocks (export prices, weather, war)
• Finding Aid to governments with good policies gt
  significant, positive growth impact
• However Analysis with additional years
  countries, finding changes
• Export price shocks and weather shocks condition
  aid effectiveness
• Study results are interesting but not
  analytically robust

8
Functionality Impact on Poverty

• Aid had no impact on infant mortality, primary
  school enrollment, life expectancy
• BUT average life expectancy, average education
  not associated with income of poorest 20
• Growth of average incomes gt growth of poor
  peoples incomes

9
Fluctuations Aid to Agriculture (From all OECD
countries)

• AgAid peaked in 1983 at 9 billion
• Fell to less than 5.0 billion by 1997
• Multilaterals went from 4 billion to 1.2
  billion
• US aid to ag was 17.5 of US aid in 1980-81 and
  3.9 in 2000
• Aid to agricultural research is 3-4 of total
• Agriculture sector has no convincing story

10
Fluctuations Aid to ag sub-sectors OECD 5-year
moving average, million , deflated
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Fluctuations Agricultural Aid US, Bilateral,
World Bank 2002 constant million
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Fluctuations US aid to Agriculture
Current million
13
Fluctuations Top 6 sub-sectors,US aid to
agriculture
Current million
14
Fluctuations Sub-sectors 7-12US aid to
agriculture
Current million
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Functionality Agricultural Growth?

• Multi-country studies
  (Hayami-Ruttan, etc) show
• Agricultural growth depends on
• Inputs explain 25-40 of outputs
• Intangibles explain 50-75
• Intangibles
• Technology
• Markets
• Human capital
• Institutions

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Functionality Aid impact on InputsWorld Bank
irrigation and drainage

• 208 projects 1950-1993 31 billion
• Summary evaluations
• 70 to Asia (85 of irrigated land)
• benefits of most projects reached the poor
• median beneficiaries 2 ha.
• average ROR 15
• 67 gt10 ROR (satisfactory)
• All bank projects 76 satisfactory

17
Functionality Aid impact on InputsWorld Bank
multiple-goal water projects

• 336 projects completed 1988-99
• Evaluated against multiple goals outcomes in
  agriculture and health, institutional
  development, sustainability
• 1988 40 satisfactory
• 1991 75 satisfactory
• 1996 53 satisfactory
• No reference to ROR or impact on agricultural or
  economic growth

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Functionality Aid impact on TechnologyResearch

• 3 to 4 of AgAid since 1980
• Few evaluations of aid for ag research
• But Many evaluations of agricultural research
  And many assessments of CGIAR
• Alston et. al. meta-analysis of 292 studies
  reporting 1,886 rates of return
• Median ROR on research was 48
• Median ROR on researchextension 37

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Functionality Aid impact on Technology Crop
varieties CGIAR

• Crop varieties in developing countries
• 8000 varieties released 1965-1998
• releases/year in 1970s 1980s 1990s
• 160 240 350
• of area covered 1970 1980 1990 1998
• 9 29 46 63
• 36 were CG crosses 17 one CG parent

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Agricultural technology is different from health
and engineering

• Production
• Technology Varieties, Pest control, Soil
  fertility management, Water management,
  Cultivation (work!)
• Uncontrolled environment Sunlight, Rainfall,
  Day-length, Soils, Insects, Diseases
• Markets
• Demand for food grows at a progressively lower
  rate as income increases
• D S highly inelastic shortages cause market
  prices to shoot up sharply
• Agricultural technology can NOT be transferred
  across agro-ecologies

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Agricultural technology can not be transferred
across agro-ecologies
Adaptation Capacity is vital
Practical, widely usable machinery depends on

• Farm size
• Financing capacity
• Relative labor/machine cost
• Dealer support (engineering marketing
  capacity)

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Agricultural technology can not be transferred
across agro-ecologies
1800 Growing Degree Day Corn Hybrids
Corn varieties
                                                  
  The six maps show the latest recommended
planting week for corn hybrids based on their
growing degree day requirement and climatological
data for the state developed from 30 year weather
station records throughout the state. Penn State
College of Agricultural Sciences Department
of Crop and Soil Sciences
2200 Growing Degree Day Corn Hybrids
23
Functionality Impact on Human CapitalHigher
Education

• World Bank 68 institutions, 25 countries 64-90
• Strong support in 1970s apologetic in 1980s
  reversed to strongly positive in 2000
• USAID 70 institutions in 40 countries 1960s
• 40 mil, India 10 mil, Indonesia 18 mil,
  Nigeria
• Support evaporated in 70s 18 in 74 10 in
  78
• Dozens of evaluations in 1980s (after the fact!)
  
• India gt1000 MS PhDs teaching capacity,
  not research
• Nigeriagt44,000 students, lack financial support
• Not Land Grant model teaching base

24
Functionality Impact on InstitutionsAgricultural
credit 1950-80

• Major component US AgAid cheap credit
  fertilizer tied to credit created new government
  agencies required bank credit to agriculture
• Results
• OK initially, Price, Weather reverses gt
  skyrocketing default
• Governments intervene to forgive loans
• New agencies or programs initiated
• Cycle repeated
• Evaluations
• disappointing serious default poor farmers
  unable to get loans lenders floundering Adams
  1984
• Impossible to assert that an intervention in the
  credit markets is justified Besley 1998
• Is micro-credit headed in the same direction?

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Functionality Impact on InstitutionsIntegrated
Rural Development

• Integrated provision of advice, soil testing,
  farm planning, credit, fertilizer, marketing
  assistance
• World Bank RD projects
• 1971-73 1974-76 1977-79 1979-82 1983-85
• 5 17 24
  21 18
• 49 successful average 10.4 ROR
• USAID 1970s to 1987 over 100 IRD projects
• 1985 evaluation summary no longer encouraged
• too complex to manage extra-institutional

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Functionality World Bank loans
Completion evaluations satisfactory agricultural satisfactory all loans
1970-73 75 78
mid-1980s 65 80
1996-99 67 71
2000-01 81 78
Africa projects generally low
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Functionality USAID Summary evaluation,
McClelland,1996
Policy reform and planning Projects to build capacity were generally successful capacity was built
Rural roads, irrigation, electrification Impossible to disentangle effects of infrastructure from the water, electricity or goods carried
Agricultural services Services like fertilizer sales and credit are best left to private sector land reform best done by national government
Natural resources Five programs all had positive impact to different degrees resources protected
Technology development and diffusion research Rates of Return generally very high productivity increased
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Aid to Agriculture What works?

• Aid to agriculture intangibles speeds growth
• Evaluations Agriculture aid effective as any
• WORKS Irrigation, Research, University
  development (fellowships)
• DOESNT Integrated rural/area development,
  Subsidized credit, Land reform
• Complex institutional requirements
• SHOULD Price information systems, Cheap internet
  access, Cell phones

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MDGs Target or Diversion?

• Health and education have little short-run impact
  on economic growth
• Health and education have short-run impact on
  health and education
• Appropriate agricultural aid contributes to
  economic growth
• If 80 of people depend on agriculture, how will
  countries fund health and education without
  growth?

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Building capacity takes a long time and steady
support

• Rockefeller Rice biotechnology program 1986-2001
• Strategic research 31 mil Applied 45 mil
  Fellowships 26 mil Meetings 5 mil Management
  7.5 mil

Accomplishments

• Crop molecular map
• Genetic transformation
• Golden rice
• 400 trained scientists
• Anther-culture derived
• rice varieties
• Capacity in Asia for
• informed debate
• policy making
• Ongoing work w/local

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How to give effective aid

• Choose an appropriate strategy 20
• Suited to the problem and available resources
• Carefully identify opportunities beforehand 20
• But dont let analysis to lead to paralysis
• Find trustworthy, able grantees 25
• Provide the funds and get out of the way 5
• Evaluation 30
• Maintain support 10-15 years or more, until
  either
• The strategy has succeeded OR
• It becomes clear it will not succeed
• Universities do Education Best - Fellowships