But I am afraid your energies have been misdirected when they are used to advance an agenda that is based on two obsolete and counter-productive premises: first, that aid for Africa must be spent in Africa rather than outside it; and, second, that we must work to increase aid flows to a target of 0.7 per cent of gross national product.Bhagwati worries that aid may not have the effect intended because, "the recipients were likely to reduce, rather than increase, their own savings efforts". But the idea that aid should substitute for domestic savings in financing capital investment is charmingly old-fashioned. First, a lot of aid is, and should be, spent on current expenditure (such as the salaries of nurses or teachers, or purchasing medicines), so we should not expect to see aid result in additional capital investment. Second, it is not a failure if foreign aid allows citizens to save less, and so consume more. The purpose of development assistance is, in part, to increase consumption by desperately poor people, both today and in the future.
It is true that large quantities of aid can present problems for recipient countries by distorting exchange rates, corroding political accountability or multiplying transactions costs. But these problems could be relatively easily removed if donors were prepared to give the aid with more predictability, fewer unnecessary condition, and to use the recipients' own systems for budget allocation, monitoring and accountability. In other words, the main constraints on aid absorption are problems of bad donor behavior, outside the control of the recipients.
Bhagwati also says that it was a mistake to target 0.7 percent of GNP because:
[w]ith all the good intentions in the world, developmental aid will take the back seat against politically more pressing needs.It is doubtless true that governments face pressures to redirect money from aid to domestic programs. But that is an argument for why we should push harder, not less hard, for increases in government aid, to offset these pressures.
Bhagwati is right that there are compelling reasons for donors to increase spending on "global public goods" such as research and development on cures for diseases. But this should complement, not substitute for, increases in development assistance to countries that can use it well.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.