There are 648 million people around the world who live in extreme poverty, surviving on just under US$2.15 a day. Many more than that live above the extreme poverty line but are classified as dwelling in poor economies or poverty, according to the World Bank.
These people rely on global aid to improve their standard of living, access to water, and medical care among other aspects of daily life. Multiple aid donors provide billions of dollars to address both humanitarian needs and development initiatives. For example, the U.S. President has contributed US$10 billion from the USAID budget to humanitarian aid in 2023 as part of a substantial US$60 billion intended for international development aid. While humanitarian aid provides assistance and support for countries facing unexpected adversities such as natural disasters, wars, and severe humanitarian crises, development aid focuses on long-term plans and on ways to reduce poverty by building facilities and infrastructure together with a workforce to achieve this goal.
See also: What is development aid and why is it important?
So, which programs are more effective in reducing poverty and boosting economic growth?
What is poverty?
Governments provide welfare programs to support communities that exist on the poverty line but when poverty strikes at a nationwide level, international non-governmental organizations (NGOs), global development donors, and humanitarian organizations cooperate to find ways to reduce poverty in these countries.
Poverty exists for various reasons and ending poverty is very challenging. Some people are born into poverty while others find themselves living on or under the poverty line due to economic factors, natural disasters, and socioeconomic status among other adversities.
How to reduce poverty with development aid
Development aid assists poor societies by providing resources and competencies that help to reduce poverty reduction and enable economic growth.
Unlike humanitarian aid, which focuses on providing urgent assistance to stricken communities, development aid helps to raise the level of an efficient economic and social baseline by, for instance, building factories, water purification plants, and electricity generators and by improving the economy, political framework, and healthcare.
Development aid can be bilateral, where one country sends assistance directly to another, and also multilateral, where a country provides resources to international organizations which then distribute this aid.
Multilateral aid is usually carried out by well-known organizations such as the World Bank, USAID, and United Nations agencies such as UNDP and UNICEF as well as individual charities, businesses, and NGOs.
In 2021, the Development Assistance Committee (DAC) member countries provided a substantial amount of Official Development Assistance (ODA) to assist poverty reduction worldwide which, at US$185.9 billion, was an increase of 14% compared to 2020. Around US$129.3 billion of the total amount was dedicated to developing economies such as Bangladesh, Afghanistan, and India.
How effective is development aid in poverty reduction?
There has been some criticism regarding the effectiveness of development aid in reducing poverty and promoting economic growth in recipient countries in terms of the intent of these donations and their long-lasting effects if they tie developing countries to future obligations.
Therefore, aid effectiveness has been established to measure how aid reduces poverty and to improve the success level of these efforts. The aid effectiveness framework includes improving aid administration and coordinating the efforts of donors and recipients.
In 2011, Busan city hosted the “Fourth High-Level Forum on Aid Effectiveness” which represented a significant step towards ensuring the effectiveness and fairness of development aid efforts. The forum brought together 3,000 delegates from developed and developing countries to discuss and coordinate the best ways to reduce poverty in developing countries.
The forum concluded with the signing of the Busan Partnership for Effective Development Co-operation which set out the framework for development aid and its effectiveness in fighting poverty. The framework established four principles for development actors:
- Ownership: Developing countries will define aid priorities and the model of implementation.
- Result-orientation: Efforts and investments must focus on sustainable developments.
- Development partnership: donors and recipients will coordinate efforts and synergies to optimize aid effectiveness.
- Transparency: All development actors share responsibility to be transparent and accountable.
A study on the effectiveness of foreign aid between 1990 and 2017 found that its effect varied according to the type of aid and the economic complexity and advancement of the beneficiary country. The study included 78 developing economies and found that foreign aid positively impacted those countries with higher economic complexity, especially in the energy and education sectors meaning that development aid empowered and helped to create more sophisticated educational and energy systems in these countries.
The study also found that democracy mitigates any drawbacks of foreign aid, suggesting that developing countries should improve their levels of democracy levels to optimize the effectiveness of development aid.
See also: Ten ways to reduce poverty in the world
Conclusion
Development aid helps countries that are on or under the poverty line by enabling them to build their future. The resources offered by various donors enable the building of hospitals, improving the educational system, and training the workforce, eventually elevating the economic status of the country and fighting poverty.
While humanitarian aid offers immediate assistance for economies devastated by natural disasters, wars, and humanitarian inequality, development aid focuses on the sustainable development of poor economies.
Development actors, both donors and recipients, can set the framework to improve aid effectiveness to guarantee a fair distribution of resources and traceable development aid efforts that are result-focused and transparent.
