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More than a quarter of development aid never leaves donor countries

26.08.2019

More than 25 percent of the aid money given by rich countries is not transferred to developing countries. Moreover, the increase of development aid in recent years is mostly attributable to higher spending on refugees within donor countries, according to a study of development experts. These findings are at odds with policy makers’ intentions of increasing development aid as a means to curb irregular migration.

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Within the framework of the MEDAM project (Mercator Dialogue on Asylum and Migration), development experts Mauro Lanati of the Migration Policy Centre at the European University Institute and Rainer Thiele of the Kiel Institute for the World Economy analysed the development aid given by rich countries—based on the countries’ annual aid spending reports to the Organisation for Economic Co-operation and Development (OECD) in Paris.

Their study illustrates that a susbstantial share of development aid is spent within the donor countries’ own borders. This so called non-transferred aid accounted for more than 25 percent of overall aid given in 2016—the last year for which data from the 29 donor countries and 125 recipient countries included were available. A trend that is continued when looking at newer data from individual donor countries.

“There is a lack of understanding about what aid actually entails,” said Rainer Thiele. “It does not necessarily equal direct assistance to developing countries and the people living in these countries. We are certainly not talking of large cash lump sums given directly from donor to recipient.”

While some aid does come in the form of money, aid is also provided as food and other goods, through debt relief, and consultants and staff providing technical advice and training. The list of what can be counted as aid has expanded over time.

Including non-transferred aid in overall aid statistics thus distorts perceptions about the amount of money available for improving living conditions in low-income countries.

“In particular in-donor refugee costs stand out. Unlike other types of non-transferred aid such as awareness campaigns, which might help raise public support in donor countries for scaling up development aid, in-donor refugee costs are virtually unrelated to development in recipient countries,” so Thiele. “For example in Germany: the high costs associated with hosting refugees in a developed country led to a step increase of development spending following the arrival of large numbers of refugees and other migrants in 2015.”

“Such spending may certainly serve important purposes, but is obviously not the same as transferring resources to developing countries.”

Increasing development aid to reduce irregular migration?

The study’s findings are therefore in stark contrast to the rhetoric of many European policy makers.
 
Since the “refugee crisis” and the subsequent rise of anti-immigration populists’ parties, policy makers see the scaling-up of development aid as a key instrument to deter migration. They argue that long-term development assistance can help address the root causes of migration through the creation of earning opportunities, quality education and better public services, thereby giving people an incentive to stay at home.

Yet, the researchers’ study illustrates that the surge in development aid since 2015 has predominantly been driven by the increase in in-donor refugee costs. Without the resource transfer to developing countries, would-be migrants are unlikely to experience actual benefits through raises in individual incomes and/or improved quality of public services.

Not surprisingly then, non-transferred aid is highly unlikely to be effective in tackling the root causes of migration, and no effects on migrant flows have been observed.

“The high share of non-transferred aid is at odds with the notion of supporting development on the ground in low and middle income countries—entirely so, when looking at the frequently stated goal of policy makers to tackle the root causes of migration,” said Thiele. “But not only is non-transferred aid unlikely to be effective in reducing migration, it also carries a great political risk in donor countries where citizens’ expectations will be built on the effects of increased development aid.”

Further information:

Lanati, M. and R. Thiele. 2019. “Foreign assistance and emigration: accounting for the role of non-transferred aid”. EUI RSCAS Working Paper No. 11, European University Institute, Florence.

Lanati, M. and R. Thiele. 2018. “Development aid can dampen migration if it improves public services.” MEDAM Policy Brief 2018/2 Kiel: Kiel Institute for the World Economy.

———. 2018. “Foreign assistance and migration choices: Disentangling the channels.” Economics Letters 172: 148–151.

———. 2018. “The impact of foreign aid on migration revisited.” World Development 111: 59–74.

———. 2018. “How Donors Respond to Refugee Movements.” In 2018 MEDAM Assessment Report on Asylum and Migration Policies in Europe, MEDAM (Mercator Dialogue on Asylum and Migration), 109–115. Kiel: Kiel Institute for the World Economy.

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