Commentary
About the data
Definitions
Data sources
ODA finances nearly half of the investment in low-income economies other than China and India
•What aid dependency ratios show
Poor countries, like poor people, tend to consume most of their income, leaving little for savings. Thus they depend on aid to raise investment, to purchase essential imports, and to maintain a minimum level of expenditure on education and health services. As countries develop, they become less reliant on aid. Many East Asian economies were once large recipients, but today receive little or no aid. Exceptions to this pattern are the large, poor countries (such as India and China) that by virtue of their size have had relatively low levels of aid relative to their economies.
Aid dependency ratios measure inflows of aid relative to the recipient country’s GNP, investment, imports, or public spending. They are a better measure of the contribution of aid than absolute levels because they compare these flows to key macroeconomic variables. Nevertheless, care must be taken in drawing policy conclusions. In general, aid dependency ratios are much higher in Sub-Saharan Africa than in other regions, and they increased during the 1980s. These high ratios are due only in part to the volume of aid flows. Many of these countries experienced a severe erosion in their terms of trade in the 1980s, which, along with weak policies, contributed to falling income, imports, and investment. Thus the increase in aid dependency ratios reflects events affecting both the numerator and the denominator.
Comparisons of official development assistance (ODA) flows with domestic investment may lead to misleading conclusions about the domestic savings effort. In many countries, particularly poorer ones, lack of information prevents independent estimates of domestic savings, which are calculated as a residual in the national accounts based on estimates of investment and public savings. An increase in foreign savings through an increase in aid results in lower domestic savings for any level of investment.
For foreign policy reasons some countries have traditionally received large amounts of assistance. Aid dependency ratios may therefore reveal as much about the interests of donors as they do about the need of recipients.
As defined here, aid includes ODA flows to recipients listed as developing countries and territories by the Development Assistance Committee (DAC) of the OECD, and ODA-like flows of official aid provided to the transition economies of Eastern Europe and the former Soviet Union and to some advanced developing countries and territories. The data cover bilateral loans and grants from DAC countries, multilateral organizations, and certain Arab countries.
The data in the table do not distinguish among different types of aid (program, project, or food aid, emergency assistance, peacekeeping assistance, and technical cooperation), each of which may have a very different impact on the economy. Technical cooperation expenditures do not always directly benefit the economy to the extent that they defray costs incurred outside the country on the salaries and benefits of technical experts and the overhead costs of firms supplying technical services.
Because the table relies on information from donors, it is not consistent with information recorded by recipients in the balance of payments. Such information often excludes all or some technical assistance, particularly payments to expatriates made directly by the donor. Similarly, grant commodity aid may not always be recorded in trade data or in the balance of payments. Although ODA estimates in balance of payments statistics are meant to exclude purely military assistance, the distinction is sometimes blurred. The definition used by the country of origin usually prevails.
The nominal values used here tend to overestimate the amount of resources transferred. Changes in international prices and in exchange rates reduce the purchasing power of aid. The practice of tying aid, still prevalent though declining in importance, also reduces the purchasing power of aid (see the notes to table 6.8). The same volume of aid may represent different purchasing power, depending on the relative costs of suppliers in different countries to which the aid is tied and the degree to which each recipient’s aid basket is untied.
Aid not allocated by country or region (including administrative costs, research into development issues, and aid to nongovernmental organizations) is included in the world total; regional and income group totals therefore do not add up to the world total.
• Official development assistance consists of net disbursements of loans and grants made on concessional terms by official agencies of the members of DAC and certain Arab countries to promote economic development and welfare in recipient economies listed as developing by DAC. Loans with a grant element of more than 25 percent are included in ODA. ODA also includes technical cooperation and assistance.
• Official aid refers to aid flows from official donors to the transition economies of Eastern Europe and the former Soviet Union and to certain advanced developing countries and territories as determined by DAC. Official aid is provided under terms and conditions similar to those for ODA.
• Aid per capita includes both ODA and official aid.
• Aid dependency ratios are computed using values in U.S. dollars converted at official exchange rates. For definitions of GNP, gross domestic investment, imports of goods and services, and central government expenditures, see the notes to tables 1.1, 4.12, and 4.18.
Data on aid are compiled by DAC and published in its annual statistical report, Geographical Distribution of Financial Flows to Aid Recipients, and in the DAC chairman’s report, Development Co-operation. The OECD also makes its data available on diskette and magnetic tape and on the Internet.
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