Wednesday, July 13, 2005

He who gives, gets 

Tim Worstall, writing on the Adam Smith Institue blog, wonders whether or not America isn't already meeting the 0.7% Live 8 aid target. While we only send $16.3 billion in official development assistance, this study shows that there is $113bn additional spent from private sources. Worstall posits,
We can argue about whether each specific category really counts as "aid" but to insist that none of it is would be obtuse, for all of it adds to the wealth of the developing nations. There has not yet been a similar study on how charitable Europeans are via private methods so we cannot do a strict comparison but it certainly seems that the US is meeting the 0.7% of GDP target when private and public assistance is added together. Why aid only counts if it is spent via the international bureaucracies, or when given to governments, when we know very well that private individuals spending their own money leads to more efficient outcomes, well, it�s just one of the mysteries of the age I suppose.
Which really is the problem -- the recipient governments don't get to control much of the money that comes in privately. The ability of the government to extract resources from private money is harder than for official aid. Some of them will erect capital controls to prevent or at least retard private direct investment by foreigners (I'll separate out the capital controls on portfolio or "hot" investment -- there's a different case to be made there); others try to control through financial repression the money sent in remittances by people who've left the country for better fortunes in employment.

One of the commenters to Worstall's post suggests we're not comparing apples to appeals because we don't know private flows throughout the world. In fact we do. The only country even in our ballpark is Saudi Arabia, where a large number of Filipino and other Asian workers are used in the service sector.

While Africa gets a huge amount of official development assistance (as a share of GDP, it gets much less FDI and its share of remittances is below those experiences in much of South Asia and the Middle East. (See also Bernard Wasow's analysis.) There has been an explosion in remittances elsewhere but not Africa. Why? I wish I knew.