The Paradox of “Development” Aid

Fireworks explode over the Closing Ceremonies of the 2008 Beijing Olympics.

Fireworks explode over the Closing Ceremonies of the 2008 Beijing Olympics.

According to a report by the Associated Press, the Chinese government received some $2.5 billion in foreign aid last year. In 2008, Japan provided $1.2 billion in aid to China. Germany offered about $600 million, with France and Britain providing slightly less. The United States also contributed, offering $65 million, primarily for programs encouraging the safe use of nuclear energy, public health, protection of human rights, and environmental protection programs. Additional aid was also provided through various multilateral agencies, including the United Nations Development Program (UNDP), and the World Bank, where the Chinese government is one the single largest barrowers, taking out approximately $1.5 billion per year.

While the grand scheme of things, $2.6 billion is not a remarkable amount of foreign aid, the amount received by China nevertheless dwarfs aid to many other countries, at least in absolute terms.  Ethiopia, for example, has a per capita gross domestic product [glossary] of just $900, less than 10 percent that of China. Despite its smaller economy and higher levels of poverty, Ethiopia received just $1.6 billion in foreign aid.

The staggering foreign exchange reserves held by the Chinese government have led some Western policy makers to question the county’s continued receipt of foreign aid. In 2010, China had an estimated $2.5 trillion in foreign exchange reserves, and benefitted from a trade surplus of $103.9 billion in the first eight months of 2010.

Some political leaders have called for a shift in aid from China to other countries in greater need. According to Adrian Davis, head of the British government aid agency in China, “People in the U.K. or people in the West see the kind of flawless expenditure on the Olympics and the (Shanghai) Expo and it’s really difficult to get them to think the U.K. should still be giving aid to China.” And there is reason to believe that aid to China may shrink.

The paradox of development aid is that it often fails to go to the countries that need it most. As the list of leading aid recipient countries over the past fifty years suggests, foreign aid donations usually have less to do with need than with other political considerations. From the signing of the Camp David Accords in 1978 until the U.S. invasion of Iraq and Afghanistan in 2001, Israel and Egypt were the leading recipients of U.S. aid, accounting for approximately 1/3 of all aid given by the United States. Yet neither is classified as one the world’s least developed countries. Iraq and Afghanistan have been among the leading aid recipients since the U.S. invasion.

According to a report by the Congressional Research Service, in 2004 (the most recent year the CRS compiled figures), the top 15 foreign aid recipients were:

  1. Iraq ($18,440 million)
  2. Israel ($2,620 million)
  3. Egypt ($1,870 million)
  4. Afghanistan ($1,770 million)
  5. Colombia ($570 million)
  6. Jordan ($560 million)
  7. Pakistan ($390 million)
  8. Liberia ($210 million)
  9. Peru ($170 million)
  10. Ethiopia ($160 million)
  11. Bolivia ($150 million)
  12. Turkey ($150 million)
  13. Uganda ($140 million)
  14. Sudan ($140 million)
  15. Indonesia ($130 million)

Of the top 15 recipients of U.S. foreign aid, only four (Afghanistan, Ethiopia, Sudan, and Uganda) are classified by the UN Conference on Trade and Development as being among the “least developed,” [glossary] and only two of the world’ twenty poorest countries makes the U.S. aid list: Afghanistan, where the United States is engaged in an ongoing war, and Ethiopia make the list. None of the world’s poorest countries (Zimbabwe, the Democratic Republic of the Congo, Burundi, Liberaia, Somalia, Guinea-Bissau, Niger, Eritrea, and the Central African Republic, with per capita gross domestic products of less than $750 each, make the cut.

So if it’s not poverty or economic need that is driving foreign aid, what is?

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