March 1, 2014

Aid and Oil

Growing numbers of large oil discoveries in low-income countries could reduce the need for foreign aid

Foreign aid has long been a sizable source of funding for developing economies. In 2012, major donors disbursed $127 billion, two-thirds of it to low-income countries in Africa and Asia. Foreign aid—more precisely official development assistance—is a drop in the bucket for donor countries, about 0.3 percent of their combined GDP. But it is a major source of funding for some developing economies—amounting to 15 percent of Liberia’s GDP and 5 percent of Burundi’s, for example (see chart).­

Foreign aid comes in many guises, but the most prominent is development assistance, which advanced economies disburse to poorer economies to promote economic and social development and is measured by the Development Assistance Committee of the Organisation for Economic Co-operation and Development. The general long-run objective of development aid is the alleviation of poverty and promotion of welfare in low- and middle-income countries through budgetary assistance and access to technology—although there is no clear evidence yet to support a relationship between aid and economic performance. 

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