The Effectiveness of Foreign Aid in Developing Countries: An Exploratory Review

Abstract

The aim of this paper is to examine whether official development assistance (ODA) or foreign aid has made developing countries worse off as alleged by a number of aid critics. ODA disbursement to developing countries increased almost five-fold; from around US$36 billion in 1960 to US$176 billion in 2016. The study found that between the period 1970 and 2017: (i) a total of 17 countries have been added to the ODA list, (ii) 60 countries have graduated from the list, mainly due of increases in their per capita incomes; (iii) out of these 60 graduates, 45 graduated between 1991 and 2018; and (iv) it is projected that another 24 countries and territories will graduate by 2030. This suggest that, overall, a number of countries have prospered over the years, and have therefore not been made worse by foreign aid. Global poverty, represented by headcount poverty rates (at US$1.90 a day) have been decreasing considerably from around 44 percent in 1981 to less than 10 percent in 2015.