Measuring Foreign Aid

Foreign Aid and GDP

By using GDP as a measure for economic growth, we are measuring the impact of aid on the market value of final goods and services produced in each country in a given time period.

It is important to note that financial inflows such as international aid generally do not impact the GDP directly. However, it can importantly affect the GDP indirectly through public investments, consumption levels rising and exports.

The drop in aid received, helps identify the impact. For example, the gradual drop to Oceania, results in an increase in GDP towards the end.

Between 1980 and 1990, the amount of mean aid given to Asia declined. Observing this drop, the GDP also declined during this time. After which, however the aid levels fluctuated and the Asia’s GDP mostly increased. The overall drop in aid in Africa from 1990 to 2000, seemed to have no impact on the GDP of Africa since it relatively stayed constant with a slight increase towards the beginning of 2000.

Europe’s GDP seems to have a positive trend overall, since 1967, regardless of the GDP. However, the continent tends to have more developed countries, and fewer previously colonized countries, thus giving aid more frequently than receiving.

Hence aid’s effect on GDP is difficult to determine, since depends on each continent, and the institutions that may exist in different economies.

Aid and Inequality

In order to examine the effect of foreign assistance on income inequality and poverty reduction, we decided to directly compare the gini coefficients of world regions in 1967 and 2007.

As observed above, apart from South America, continents received more aid in 2007 compared to 1967. Additionally, taking the aid received into account over the years, we hypothesize that the aid affected the gini coefficient in each continent. From the maps, in South America, Brazil’s GDP shows an increase (47.4 to 54.9). Russia and China’s gini coefficients almost double in 2007. While, several countries in Europe have lower gini coefficients.

In Africa, South Africa shows a decline in gini coefficient (68.4 to 63.9), suggesting improvement in income distribution. However, Namibia is darker (higher gini in 2007) . Overall, the continent seems lighter blue (suggesting less inequality) in 2007.

In Asia, most countries show lower gini coefficients. However, there are increases in India, China and Japan. A few countries such as North Korea remain the same.

Hence, in the two continents that received the most foreign assistance, there is evidence of slightly lower gini coefficients in the countries. Hence, there is weak evidence that assistance is beneficial to the gini coefficients.