The Ghost of 0.7%

One thing about being new to a field is that you not only have to keep up with the latest developments, but also have to explore the voluminous literature that built up before your time. A lot of it is no longer relevant, but there’s a lot of good stuff that isn’t appearing on social media or in the news.

Case in point: this working paper by Michael Clemens and Todd Moss of CGD, “Ghost of 0.7%: Origins and Relevance of the International Aid Target” (PDF). The abstract:

The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance.

First, the 0.7% target was calculated using a series of assumptions that are no longer true, and justified by a model that is no longer considered credible. When we use essentially the same method used to arrive at 0.7% in the early 1960s and apply today’s conditions, it yields an aid goal of just 0.01% of rich-country GDP for the poorest countries and negative aid flows to the developing world as a whole. We do not claim in any way that this is the ‘right’ amount of aid, but only that this exercise lays bare the folly of the initial method and the subsequent unreflective commitment to the 0.7% aid goal.

Second, we document the fact that, despite frequent misinterpretation of UN documents, no government ever agreed in a UN forum to actually reach 0.7%—though many pledged to move toward it.

Third, we argue that aid as a fraction of rich country income does not constitute a meaningful metric for the adequacy of aid flows. It would be far better to estimate aid needs by starting on the recipient side with a meaningful model of how aid affects development. Although aid certainly has positive impacts in many circumstances, our quantitative understanding of this relationship is too poor to accurately conduct such a tally. The 0.7% target began life as a lobbying tool, and stretching it to become a functional target for real aid budgets across all donors is to exalt it beyond reason. That no longer makes any sense, if it ever did.

What if you start from an estimate of recipient ‘need’ rather than from the donor end?

One recent estimate that does try to start from the recipient ‘need’ and add up the costs is the Millennium Project.69 Even if one were to accept their methodology and their long list of recommended interventions (many of which are problematic), they nonetheless only arrive at 0.54% of rich country GNI as the total aid requirement. That is, even the most ambitious estimates suggest that 0.7% is vastly overstated.

But from a purely political point of view, aren’t these goals helpful? (As they ask it, “Is there any harm in promoting nonsensical goals?”) Their answer to this is more cursory, but basically they hypothesize that the 0.7% goal may be politically useful in European countries, while it may be counterproductive in the United States where it represents a drastic — and politically unlikely — increase in aid.

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10 2011

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