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12 August 2010
Australians are generous with their overseas aid but Deakin University’s Chair in International Development, Professor Mark McGillivray, has challenged the basis on which billions of dollars in development aid is allocated by the World Bank and other international aid agencies.
Professor McGillivray, who is based at the University’s Alfred Deakin Research Institute, chose the world stage and a conference attended by five Nobel prize-winning economists to argue that the means by which aid is allocated to vulnerable countries was flawed and penalises the most needy countries.
Professor McGillivray, and his co-authors Professor Patrick Guillaumont and Laurent Wagner from one of France’s leading development research organisations, the Fondation pour les Etudes et Recherches sur le Développement International (FERDI), said poorer and more vulnerable countries missed out on vital aid because agencies like the World Bank only allocated aid according to a very narrow criteria.
“The global development aid budget in 2009 was $145 billion and over the coming years is predicted to exceed $155 billion per year,” he said.
“Much of this aid has or will be allocated according to an allocation system that unfairly penalises not only needy countries but those that are doing all they can to improve the poverty reducing impact on the aid they receive.”
Professor McGillivray noted that some of the world’s poorest and most needy countries such as Pakistan, Timor-Leste, Cambodia, Afghanistan and Haiti and the majority of sub-Saharan African countries each year missed out on millions of dollars in aid due to the use of this system.
“In Pakistan’s case, if we used a different allocation system, designed by my colleagues at FERDI, Pakistan would get five per cent more aid than it does currently,” he said.
“I appreciate in percentage terms that this is not a huge difference but in dollar terms it comes to a big amount.
“The other countries I mentioned would receive 50 per cent more aid than they do currently.”
Professor McGillivray said those who favoured the current allocation system argued that it was efficient in that it gives preference to countries in which aid is thought to be more effective in reducing global poverty.
“These countries are those thought to have good government policies and which have public institutions like central banks and government agencies that have good track records of performance,’’ he said.
Professor McGillivray said the current system encouraged recipient countries to continue trying to make improvements in these areas, by rewarding them with larger levels of aid than would otherwise be the case.
“Yet the system is blind to the various constraints that many countries such as Pakistan and Timor Leste face in implementing better policies and improving institutional performance,” he said. “It is typically the neediest countries that face the biggest constraints.
“The current system allocates billions of dollars less in aid to these countries owing to this oversight, meaning that millions more people live in poverty than would otherwise be the case.
“We believe it is time aid was allocated via a new system which takes into account a wider range of factors in recipient countries such as structural vulnerability to external shocks and human capital levels.”
Professor McGillivray’s address took place at the Annual Bank Conference on Development Economics (ABCDE) - Development Challenges in a Post-Crisis World, Stockholm.
The Nobel Prize winners (in economics) are Elinor Ostrom, Indiana University, USA Joseph Stiglitz, Columbia University Stiglitz, James Mirrlees, Cambridge University, UK; Robert Solow, Massachusetts Institute of Technology (MIT), USA ; Eric Maskin, Institute for Advanced Study, Princeton University, USA.
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