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 relatively rich or worse-governed recipients, for overburdening governments 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.





2007

Denmark: 13.0 Sweden: 12.6 Netherlands: 11.8 Norway: 11.3 Ireland: 7.5 Belgium: 5.7 Finland: 5.3 United Kingdom: 5.2 Switzerland: 4.7 Canada: 4.4 France: 4.4 New Zealand: 3.9 Australia: 3.4 Spain: 3.2 Austria: 3.1 Italy: 3.0 Germany: 2.9 Portugal: 2.7 United States: 2.4 Greece: 2.2 Japan: 1.3 South Korea: 0.0 Aid 2007

CDI site with animation

 

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, well-governed nations. While aid to Iraq—where corruption is rampant and rule of law weak—is counted at 22¢ on the dollar, aid to Ghana—where poverty is high and governance relatively good—is counted at 97¢ 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 Finland and Sweden offer such incentives. Since the Index is about government policy, it counts only private giving that is attributed to tax incentives.


The dramatic differences between countries in raw aid quantity heavily influence the overall aid scores. The top six slots on aid are occupied by the Scandinavian countries, the Netherlands, and Ireland, while Italy, Japan and South Korea place at the bottom. Sweden takes first place both overall and for sheer aid quantity as a share of GDP. But quality matters too. Germany ranks 11th on sheer aid quantity as a share of GDP, but falls to 14th in the overall aid component for funding smaller projects and tying nearly a quarter of its aid. At 17th, the United States also ranks in the bottom half of donors on aid. It would score higher if it contributed a higher share of its GDP and gave less to corrupt or undemocratic governments in Iraq, Jordan, Pakistan, and elsewhere.


For more on aid, explore the aid effectiveness topic, related publications, and experts.