Document Abstract
Published:
2008
Global poverty, inequality, and aid flows: a rough guide to some simple justice
Are current levels of aid adequate to eradicate world poverty? Evidence from 174 countries
Although aid effectiveness issues tend to top the development agenda these days, analysis of aid flows remain equally important. In this context, a new research article published in the Indian Economic and Political Weekly uses data for 174 donor and recipient countries from the UNDP’s 2007-08 Human Development Report to examine current trends in aid flows and the extent to which these are likely to help eradicate world poverty.
The article lists the 174 countries chronologically according to their per capita GDP and population size to calculate the global distribution of income. An international poverty line of $ 1,400 per capita GDP is added to estimate world poverty in terms of the headcount index (0.44), the poverty gap index (0.29) and the squared poverty gap index (0.21). These calculations indicate that world poverty today remains high.
In order to verify whether current aid flows match global poverty reduction needs, the total amount of income required to push all the poor countries above the poverty line – the poverty deficit – is estimated at $1,839 billion. Total aid disbursement in 2005 amounted to $110 billion, just 6 per cent of the poverty deficit. And yet, a relatively small sacrifice by a few rich countries could yield a disproportionately large benefit to a large number of poor countries. The article finds that reducing the per capita GDP of the 11 richest countries to $37,045 would not only provide enough funds to cover the poverty deficit, it would also mean that their average per capita would still exceed the GDP of the poorest country by a factor of over 2600 per cent.
The article then conducts an aid liability exercise that requires countries with a per capita GDP in excess of $14,000 (10 times the international poverty line) to allocate the extra income as aid. This reveals that only 5 of the 22 DAC provide more aid than they are liable for under this scheme. Clearly, then, a few donor countries have been bearing a disproportionate amount of the aid burden to offset the aid reluctance of other countries.
Finally, the article turns to aid distribution trends among poor countries by looking at countries’ per capita GDP in relation to per capita aid received to find little evidence of any need-related rationale for aid allocations: while Grenada with a per capita GDP of $4,451 received a per capita aid of $400 in 2005, for instance, India, with a per capita GDP of $736, received a per capita aid of $1.58.
The article lists the 174 countries chronologically according to their per capita GDP and population size to calculate the global distribution of income. An international poverty line of $ 1,400 per capita GDP is added to estimate world poverty in terms of the headcount index (0.44), the poverty gap index (0.29) and the squared poverty gap index (0.21). These calculations indicate that world poverty today remains high.
In order to verify whether current aid flows match global poverty reduction needs, the total amount of income required to push all the poor countries above the poverty line – the poverty deficit – is estimated at $1,839 billion. Total aid disbursement in 2005 amounted to $110 billion, just 6 per cent of the poverty deficit. And yet, a relatively small sacrifice by a few rich countries could yield a disproportionately large benefit to a large number of poor countries. The article finds that reducing the per capita GDP of the 11 richest countries to $37,045 would not only provide enough funds to cover the poverty deficit, it would also mean that their average per capita would still exceed the GDP of the poorest country by a factor of over 2600 per cent.
The article then conducts an aid liability exercise that requires countries with a per capita GDP in excess of $14,000 (10 times the international poverty line) to allocate the extra income as aid. This reveals that only 5 of the 22 DAC provide more aid than they are liable for under this scheme. Clearly, then, a few donor countries have been bearing a disproportionate amount of the aid burden to offset the aid reluctance of other countries.
Finally, the article turns to aid distribution trends among poor countries by looking at countries’ per capita GDP in relation to per capita aid received to find little evidence of any need-related rationale for aid allocations: while Grenada with a per capita GDP of $4,451 received a per capita aid of $400 in 2005, for instance, India, with a per capita GDP of $736, received a per capita aid of $1.58.
