Growth Constraints, Aid Targets, and Basic Needs

Developed countries have always had complex objectives in providing economic assistance to poor countries. Political/security objectives and the pursuit of narrow domestic economic and commercial interests often combine to dominate the promotion of development and poverty alleviation. The complexity of donor objectives and the multiplicity of actors make an assessment of aid effectiveness in promoting development extremely difficult. This chapter traces the evolution of thinking about what works and what does not from the 1950s and 1960s to about 1980. Early thinking about economic development stressed aid’s contribution to the accumulation of physical and human capital. In the sixties, continued pessimism about developing country export prospects and recognition of the importance of imports needed to finance additional domestic investment led many to believe that developing economies growth depends on the availability of foreign exchange to which aid can obviously contribute. But, as experience with aid giving increased, a serious criticism started to gain acceptance. The problem was not that aid often did not contribute to growth. Rather that whatever growth occurred, did little to alleviate poverty. This criticism had a lasting effect on donor aid programs in the 1970s and formed the basis for assessing aid effectiveness for the next several decades.