Aid
Foreign aid is the first policy that comes to mind when people in rich countries think of helping poorer countries. The aid component of the CDI moves beyond standard but narrow comparisons of the quantity of aid governments give, factoring in quality too. It penalizes donors for giving aid to rich or corrupt governments, for overburdening recipients with lots of small aid projects, or for "tying" aid, which forces recipients to spend it on the donor country's own goods rather than shop around for the lowest price. The component also rewards tax deductions and credits that support private charity.
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Aid FeaturesResources on Aid |
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Aid Details
Most comparisons between donors are based on how much aid each gives, either in absolute terms or as a percentage of GDP. For the CDI, quantity is merely a starting point in a review that also assesses aid quality. The Index penalizes “tied” aid, which recipients are required to spend on products from the donor nation; this prevents them from shopping around and raises project costs by 15–30 percent. The Index also subtracts debt payments the rich countries receive from developing countries on aid loans. And it looks at where aid goes, favoring poor, uncorrupt nations. Aid to Iraq, for instance, is counted at 11¢ on the dollar, since in Iraq corruption is rampant and rule of law weak. Aid to Mozambique, on the other hand, with its high poverty and relatively good governance, is counted at 89¢ on the dollar. Finally, donors are penalized for overloading recipient governments with too many small aid projects. When projects are many and recipient officials few, the obligation to host visits from donor officials and file regular reports becomes a serious burden.
The Index rewards governments for letting taxpayers write off charitable contributions, since some of those contributions go to Oxfam, CARE, and other nonprofits working in developing countries. All CDI countries except Austria, Finland, and Sweden offer such incentives. Since the Index is about government policy, it counts only private giving that is attributed to tax incentives. Private giving to developing countries is higher in the U.S. than in most countries, at 8¢ per person per day. But even adding that to the 20¢ a day in government aid leaves the U.S. well short of donors such as Sweden and Denmark, which give $1.07 and $1.11 a day in government aid alone.
The differences between countries in raw aid quantity are dramatic, and as a result they heavily influence the overall aid scores. The Netherlands and the Scandinavian countries take the top four slots on aid, while Japan and the U.S. end up near the bottom. But quality matters too. Norway edges out the Netherlands for second place on sheer aid quantity as a share of GDP, but falls to fourth in the CDI for funding smaller projects and being less selective. And the U.S. would score higher if it did not tie some 50 percent of its aid and gave less to corrupt or undemocratic governments in Iraq, Jordan, Pakistan, and elsewhere.
For more, go Inside the Index.