Fads, Fashions, Fluctuations and Functionality in Foreign Aid

Robert W. Herdt41st Annual Meeting of the Association for

International Agriculture and Rural Development

Washington, D.C., June 5-7, 2005

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 > evaluation

• Functionality – Does aid work?

• Does agricultural aid work? What kind?

• Need more agricultural aid that works!

Fluctuations: Where does aid go? (from all OECD countries)

five year moving averages, million 2001 $

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000 Public services

Production

BusinessservicesMacroeconomicadjustmentCommodities

Disaster relief

Multisectoraland other

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

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

Fluctuations: Aid to ag sub-sectors OECD 5-year moving average, million $, deflated

0

5

10

15

20

25

30

35

1975

1978

1981

1984

1987

1990

1993

1996

1999

Policy, administration,services supportIrrigation, land resources,forestryArea development, cropproduction, generalLivestock, vet services,fisheriesResearch on crops,livestock, fish, forestsCredit, coops, landreformFertilizer, other inputsupplyExtension

Fluctuations: Agricultural Aid: US, Bilateral, World Bank

2002 constant $ million

0

2000

4000

6000

8000

10000

12000

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

IBRD IDA

DAC less US

US

Total

Fluctuations: US aid to Agriculture

0

200

400

600

800

1000

1200

Total current $

Total 2002 $

Current $ million

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

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% >10% ROR (satisfactory)– All bank projects: 76% satisfactory

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

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 research+extension 37%

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

Agricultural technology can not be transferred across agro-ecologies

Farm sizeFinancing capacityRelative labor/machine costDealer support (engineering & marketing capacity);

Practical, widely usable machinery depends on:

AdaptationCapacity is vital

                                                    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

1800 Growing Degree Day Corn Hybrids

2200 Growing Degree Day Corn Hybrids

Agricultural technology can not be transferred across agro-ecologies

Corn varieties

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: >1000 MS& PhDs: teaching capacity,

not research– Nigeria:>44,000 students, lack financial support– Not Land Grant model – teaching base

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 => 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?

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

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

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

Aid to Agriculture: What works?

• Aid to agriculture “intangibles” speeds growth • Evaluations: Agriculture aid: effective as any • WORKS: Irrigation, Research, University

development (fellowships) • DOESN’T: Integrated rural/area development,

Subsidized credit, Land reform – Complex institutional requirements

• SHOULD: Price information systems, Cheap internet access, Cell ‘phones

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

Crop molecular mapGenetic transformation “Golden rice”400 trained scientistsAnther-culture derived rice varieties Capacity in Asia for informed debate & policy makingOngoing work w/local $

Accomplishments

How to give effective aid

• Choose an appropriate strategy – 20%– Suited to the problem and available resources

• Carefully identify opportunities beforehand – 20%– But don’t 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