Silviase/jgov_v1.4_full_ann huggingface dataset:
sent engineers to joint-development projects being implemented in South and Southeast Asia in cooperation with 24 countries and the World Bank. The Overseas Technical Cooperation Agency (OTCA), which later became the Japan International Cooperation Agency (JICA) in 1974, was founded in 1964 to dispatch Japanese experts and engineers to developing countries, while receiving their officials and engineers for training in Japan.

The first ODA yen loan of ¥18 billion yen was extended to India to finance a project under the Colombo Plan in 1958 $ ^{4} $ . The Overseas Economic Cooperation Fund (OECF) was founded in 1961 to extend yen loans to finance imports and development projects. Japan became a member of the Organization for Economic Cooperation and Development (OECD) in 1964, and was accepted as a donor country of the Development Assistance Committee (DAC) of OECD. Japan took the initiative for the creation of the Asian Development Bank (ADB), which was established in 1966.

According to the creditors' reporting system of the DAC, Japan's ODA disbursement (net of repayment) in the 1960s amounted to $1.94 billion, approximately four percent of the world ODA total of $50 billion. Of the $1.94 billion of Japan's total ODA in the 1960s, the share of yen loans was 53 percent, and that of grants including technical assistance was 47 percent. The six countries that received more than 10 percent of their total ODA from Japan in the 1960s are Bhutan, Indonesia, Korea, Myanmar, Philippines, and Taiwan (see the left side of Table 1-4). Japan continued to provide more than half of ODA received by Indonesia, Myanmar, and Philippines in the 1990s.

## (2) 1970-1979

The 1970s was an epochal era for Japan’s ODA, and helped to strengthen ties with the ASEAN countries. The oil crisis that broke out in 1973 and the subsequent rapid inflation of primary products in the international commodities market made it clear that the Japanese economy was fragile, and dependent on the oil-producing countries. This incident impressed Japanese policymakers with the importance of securing natural resources, and so-called diplomacy on resources started. Prime Minister Fukuda announced the Fukuda doctrine when he visited the five ASEAN countries and Burma in 1977, and promised to provide $10 billion for their joint development projects with Japan.

Massive ODA was also extended by Japan to the oil-producing countries, especially to Iran and Iraq. The Japan Export-Import Bank provided loans to Japanese developers/
producers/traders of natural resources to set up joint ventures in developing countries to develop/produce resources, and import products to Japan. Large-scale development projects, such as the Asahan aluminum project in Indonesia, the the Bandar-e Khomeini petrochemical project in Iran, and the Amazon aluminum project in Brazil were launched in the early 1970s, reinforcing public-private cooperation in the resource sector. The left side of Table 1-5 shows the countries which received more than 10 percent of their total ODA from Japan in the 1970s. China, Malaysia, Paraguay, Saudi Arabia, Singapore, Sri Lanka, and Thailand continued as large recipients of Japan’s ODA until the 1990s.

In 1974, the Ministerial Meeting of the DAC adopted an agreement that stipulated that the procurement tenders for the projects of ODA loans be open to all countries. Following this agreement, Japan substantially raised its ratio of untied ODA yen loans. In 1978 the Japan-US Joint Declaration was concluded, in which Japan announced a policy that in principle all ODA loans would be untied $ ^{5} $ . This principle resulted in a rapid hike of the untied ratio of ODA loans, finally reaching 100 percent in 1980. Later, in 1992, the DAC adopted guidelines for procurement measures that stated that mutual surveillance be regulated in implementing projects of not only official loans but also of associated loans with private funds to secure transparency.

## (3) 1980-1989

Japan’s escalating trade surplus in the latter half of the 1980s brought pressure from abroad to recycle the surplus. The MOfA reformulated the medium-term ODA plan three times in 1981, 1985, and 1988, increasing the targets for ODA from $21.4 billion in five years to more than $50 billion in five years. The MOfA announced in 1987 that Japan would recycle official funds of more than $30 billion in three years. In 1989 the MOfA increased its target to $65 billion in five years. Japan achieved this target in 1992 by recycling $67.2 billion in official funds to developing countries.

The previous decade had seen massive recycling of the oil dollars into the Latin American economies, but the rise in US interest rates saw a step decline in the private capital inflows. The crash in international commodity prices exacerbated the trade imbalance in a number of countries, and contributed to the serious debt problem in countries such as Mexico, Argentina, Brazil, Chile and Ecuador. Mexico was compelled to default on its international loan commitments in 1982, followed shortly thereafter by Brazil. The debt problems in Latin America were finally subdued when the US Treasury Secretary, Nicholas Brady, took leadership in persuading private banks.
to reduce/cancel the loans to those countries, or exchange the loans for the stocks of the firms in debt, known as debt for stock swap.

On the other hand, the IMF and the World Bank provided rescue loans to those countries with the condition that their governments should initiate structural reform policies by tightening fiscal expenditures, devaluating the currency, slashing wages, and opening up the goods market to activate the market mechanism to scale down the public sector. The structural reform policy taken by the IMF/WB, however, was criticized for subduing economies, and the drastic devaluation of the currencies actually increased the burden of paying back the dollar-denominated loans, rather than alleviate the pains of the debtor countries, as was planned.

Japan extended bilateral ODA to rescue many of these debt-ridden countries, and increased its subscriptions and voluntary contributions to the multilateral development banks. Of the 65 billion of targeted official capital outflows, the MOF disbursed 23.5 billion as OOF, 12.5 billion as bilateral ODA, and 29 billion in contributions to the multilateral development institutions $ ^{6} $ . The left side of Table 1-6 shows the countries that received more than 10 percent of the total ODA from Japan in the 1980s. Most of them continued to do so in the 1990s. Brazil and Mongolia received more than 40 percent of their total ODA from Japan in the 1990s.

## (4) 1990-1999

According to revised DAC data, Japan was the largest ODA creditor from 1993 through 2000, reaching its peak of $15.3 billion in 1999. The share of Japan's net ODA ($73 billion) in the DAC total ($414 billion) was 17.7 percent in the 1990s, whereas the share of ODA loans ($38 billion) was 32.3 percent, and that of ODA grants ($35 billion) was 11.9 percent. In addition to ODA, Japan provided $47 billion of net OOF (50 percent of the DAC total) in the 1990s, of which $8 billion was multilateral OOF. Meanwhile, Japan's private capital flow to developing countries in the 1990s amounted to $87 billion, or 11 percent of DAC total private flows.

After the break up of Soviet Union in 1991, countries in Central Asia and Eastern Europe were added to the list of eligible recipient countries of the DAC, while the newly industrialized economies in Asia (Korea, Taiwan, Singapore, and Hong Kong) were phased out from the list of recipients in the late 1990s. In 1995, the DAC adopted an agreement entitled Development Partnerships in the New Global Context, in which public-private partnership and ownership of the targeted country/group in
implementing the development aid programs was emphasized. This agreement initiated the reform of the official aid agencies and the measures of technical assistance worldwide.

Public-private partnership promoted the participation of NGOs and civil society in implementation, monitoring, and evaluation of the ODA projects. NGOs are the major actors of technical assistance in many donor countries other than Japan. The MOfA set up small-scale subsidies to assist the development efforts of internal and external NGOs in 1989, and started regular consultation with internal NGOs in 1996. It also encouraged grassroots monitoring by the local NGOs, which work closely with the development project sites funded by official development assistance.

The left side of Table 1-7 shows the countries that received more than 10 percent of the total ODA from Japan in the 1990s. Most of the countries in this table had received scarce amount of ODA from Japan in the 1960s through 1980s. It is perhaps indicative of the major role taken up by Japan in the field of ODA, especially when the US and the European countries scaled down their bilateral development assistance in South America and Africa after the end of the cold war.

## (5) 2000-present

The international development community began to focus on poverty reduction as the main goal of development assistance after the financial crisis in 1997. The IMF/WB took the initiative to provide debt relief to the heavily indebted poor countries (HIPC Initiative) on the condition that the beneficiary countries would formulate poverty-reduction strategic plans (PRSP) under their guidance. The HIPC Initiative is considered by many to cast the largest burden on Japan, since the outstanding balance of ODA yen loans (99 billion) amounts to nearly 37 percent of the total bilateral ODA loans (270 billion) by all DAC donors at the end of 2000 $ ^{7} $ . Japan also made a commitment to subscribe to the HIPC fund for canceling the multilateral debts extended by the IMF, the World Bank, and other regional development banks.

The Millennium Summit of the United Nations adopted the Millennium Development Goals (MDG) in June 2000, which targeted the reduction of poverty $ ^{8} $ in half by 2015. The UN Conference on Financing for Development, held in March 2002, adopted the Monterrey Consensus as a development cooperation strategy in the 21 $ ^{st} $ century, which emphasized the mobilization of domestic savings of, and the private capital inflows into, developing countries. Prime Minister Koizumi presented the Initiative for Global
Sharing in August 2002 at the World Summit for Sustainable Development in Johannesburg, where he committed to education of personnel in developing countries who engage in such issues as environment protection and trade liberalization relating to the Doha Agreement of the WTO, adopted in November 2001.

### 1.3 Development Paths of the Recipients

The right side of Tables 1-4 through 1-7 shows the relative ratios of the 10 year average of per capita real GDP (calculated in constant 1995 US$ price) in the 1960s through the 1980s to those of the 1990s being normalized as 1, whereas the column on the extreme right gives the average per capita real GDP of the 1990s in constant 1995 prices. The right side of Table 1-4 indicates that the economies of Myanmar and Philippines did not grow as fast as those of Indonesia, Korea, and Taiwan. Korea and Taiwan had similar rapid growth paths, almost doubling their income every decade. The economy of the Philippines, however, stalled in the 1990s.

As seen in the right side of Table 1-5, China, Hong Kong, Malaysia, Singapore, and Thailand are all countries in East and Southeast Asia that grew as rapidly as Korea and Taiwan. Costa Rica, Mexico, Paraguay, and Sri Lanka however grew slowly. The growth was negligible in the 1980s in Costa Rica, and in the 1990s in Mexico and Paraguay, when the debt problems overwhelmed many countries in Latin America. In the oil-producing countries, such as Iran, Nigeria, Peru, and Saudi Arabia, the economic growth slowed significantly, as oil prices fell over the 1980s and 1990s. The per capita GDP of Iran and Saudi Arabia in the 1990s decreased by more than 30 percent compared to the 1970s.

No country in Table 1-6 grew as fast as those in Table 1-4 or Table 1-5. Only Chile and Colombia showed steady growth from the 1960s through 1990s, though the growth in Chile stagnated in the 1990s, while it accelerated in Colombia. Bolivia did not see any appreciable growth over these 40 years. Kuwait and Zambia have significantly degenerated since 1960s. Other countries, such as Argentina, Bangladesh, Brazil, Fiji, Honduras, Kenya, Nepal, Pakistan, Syria, Turkey and Uruguay, grew slowly, and growth stagnated somewhat in the 1980s and 1990s.

The countries that grew slowly but steadily in Table 1-7 are the Dominican Republic, India, Oman, Seychelles, and Swaziland. Central Africa, Ghana, and Venezuela declined, while most of the other countries stagnated. On the other hand, Dominica, Grenada, St. Lucia, St. Vincent, and Vietnam grew rapidly over the 1990s.
Figure 1-1 Annual ODA extended by Japan, US and Germany

(Source) Development Assistance Committee, OECD
Figure 1-2 Official and private capital flows to developing countries

(Source) Development Assistance Committee, OECD
Figure 1-3 Official and private debts of developing countries

(Source) World Bank, Global Development Finance 2001
Table 1-4 Large recipients of Japan’s ODA (1960-1999)

Countries	Share of Japan's ODA to total ODA (%)	Real GDPP (1990s=1)	GDPP
1960-69	1970-79	1980-89	1990-99	1960-69	1970-79	1980-89	1990-99
Bhutan	25.0	4.4	12.6	25.9	--	--	0.68	438
Indonesia	28.3	28.1	43.8	62.7	0.27	0.39	0.62	961
Korea	11.6	38.5	69.6	--	0.15	0.29	0.52	10,250
Myanmar	65.9	46.9	46.7	58.9	0.67	0.74	0.93	2,361
Philippines	49.9	40.4	49.2	51.8	0.74	0.92	1.02	1,061
Taiwan	11.7	232.0	14.9	19.4	0.14	0.28	0.54	12,538

Table 1-5 Large recipients of Japan’s ODA (1970-1999)

Countries	Share of Japan's ODA to total ODA (%)	Real GDPP (1990s=1)	GDPP
1960-69	1970-79	1980-89	1990-99	1960-69	1970-79	1980-89	1990-99
China	0.0	15.3	41.0	39.3	0.18	0.24	0.45	555
Costa Rica	0.1	10.9	1.9	18.3	0.59	0.81	0.83	3,410
Hong Kong	1.1	15.7	11.1	36.6	0.20	0.37	0.67	21,546
Iran	1.2	73.5	-0.5	10.3	--	1.32	0.91	1,485
Iraq	0.6	52.1	36.4	-0.7	--	--	--	--
Laos	3.0	10.8	12.8	25.5	--	--	0.77	376
Malaysia	7.2	48.7	55.9	38.8	0.28	0.43	0.64	4,043
Mexico	1.8	22.9	35.2	0.0	0.58	0.78	0.96	3,338
Nigeria	0.1	10.7	33.5	6.2	0.85	1.19	0.95	257
Paraguay	0.2	13.3	50.7	48.3	0.53	0.72	0.99	1,814
Peru	0.3	13.4	9.6	26.7	1.00	1.17	1.13	2,141
Saudi Arabia	0.0	12.4	39.9	41.5	0.74	1.38	1.22	6,940
Singapore	5.5	33.4	33.6	81.0	0.14	0.32	0.56	26,521
Sri Lanka	7.4	10.7	20.7	31.9	0.43	0.54	0.73	693
Thailand	8.9	36.8	57.5	30.8	0.22	0.35	0.54	2,539

Table 1-6 Large recipients of Japan’s ODA (1980-1999)

Countries	Share of Japan's ODA to total ODA (%)	Real GDPP (1990s=1)	GDPP
1960-69	1970-79	1980-89	1990-99	1960-69	1970-79	1980-89	1990-99
Argentina	-19.6	1.0	17.5	15.7	0.78	0.97	0.92	7,449
Bangladesh	0.0	9.5	16.2	13.0	0.74	0.68	0.80	315
Bolivia	0.1	7.1	14.4	11.4	1.00	1.09	0.97	898
Brazil	1.7	6.8	28.4	43.8	0.45	0.77	0.95	4,095
Chile	0.3	5.3	49.9	24.6	0.49	0.53	0.61	4,384
Colombia	0.5	0.7	13.4	12.6	0.52	0.70	0.84	2,289
Fiji	0.0	1.0	15.7	33.6	0.59	0.83	0.89	2,482
Honduras	0.0	2.9	10.3	13.2	0.78	0.93	0.99	702
Kenya	0.4	5.4	10.8	16.3	0.63	0.88	0.99	337
Kuwait	--	9.0	11.9	10.9	2.49	1.69	0.73	15,734
Mongolia	0.0	0.0	14.7	43.6	--	--	1.17	409
Nepal	0.4	8.2	17.7	23.1	0.74	0.74	0.80	204
Pakistan	4.4	7.3	13.6	21.9	0.44	0.57	0.78	488
Qatar	0.0	4.3	28.8	36.2	--	--	--	--
Samoa	0.0	4.8	17.8	30.5	--	--	0.98	940
Solomon Island	0.0	3.5	12.0	32.5	--	0.60	0.85	821
Syria	0.2	0.1	28.0	27.7	0.49	0.73	0.92	1,120
Tonga	0.0	6.6	16.1	29.9	--	--	0.89	1,577
Turkey	0.0	2.8	14.3	17.4	--	0.66	0.78	2,839
Uruguay	0.1	0.9	13.1	16.0	0.67	0.75	0.82	5,712
Zambia	0.0	8.5	10.8	8.5	1.60	1.60	1.26	422
Table 1-7 Large recipients of Japan’s ODA (1990-1999)

Countries	Share of Japan's ODA to total ODA (%)	Real GDPP (1990s=1)	GDPP
1960-69	1970-79	1980-89	1990-99	1960-69	1970-79	1980-89	1990-99
Cambodia	5.5	5.0	0.6	18.9	--	--	--	268
Central Africa	0.0	0.6	3.6	12.2	1.32	1.36	1.19	336
Djibouti	0.0	0.1	1.4	11.6	--	--	--	863
Dominica	0.0	0.2	2.2	15.7	--	--	0.71	3,089
Dominican Republic	0.1	0.4	8.0	24.3	0.46	0.72	0.88	1,565
Ecuador	0.2	9.8	8.8	14.3	0.53	0.81	0.98	1,531
El Salvador	0.3	8.6	0.1	11.5	0.95	1.11	0.86	1,592
Ghana	0.4	2.6	8.8	16.3	1.17	1.16	0.91	378
Grenada	0.0	0.1	0.4	17.0	--	--	0.71	3,015
Guatemala	0.0	2.0	1.8	15.7	0.71	0.96	0.97	1,451
India	3.7	4.3	6.7	28.3	0.52	0.57	0.70	374
Jamaica	0.0	0.2	5.1	14.3	0.88	1.09	0.89	1,773
Jordan	0.1	0.5	2.3	26.8	--	0.85	1.19	1,569
Mauritania	0.0	0.5	2.3	11.6	0.87	1.09	1.01	456
Oman	0.0	0.1	2.3	13.1	0.21	0.60	0.86	5,623
Panama	0.0	1.2	9.6	34.6	0.62	0.86	0.93	2,971
Papua New Guinea	0.0	0.5	4.1	11.1	0.67	0.91	0.84	1,010
Seychelles	0.0	0.0	3.0	10.5	0.38	0.55	0.71	6,873
St. Lucia	0.0	0.0	4.6	12.8	--	--	0.60	3,792
St. Vincent	0.0	0.0	4.7	15.1	--	--	0.69	2,388
Swaziland	0.0	0.4	1.5	11.9	--	0.67	0.79	1,417
Vanuatu	0.0	0.0	4.7	14.4	--	--	1.10	1,426
Venezuela	0.1	2.5	9.1	14.7	1.14	1.22	1.02	3,514
Vietnam	1.4	5.3	1.3	26.5	--	--	0.69	271
Yemen	0.1	0.8	5.1	12.9	--	--	--	276

(Source) SNA data: World Development Indicators, World Bank

Macro data: Global Development Network Growth Database, World Bank

ODA data: Geographical Distribution of Financial Flows to Aid Recipients, OECD

Financial data: International Financial Statistics, IMF

Government data: Government Financail Statistics, IMF

(Database) Development Assistance and Developing Economies Database Kokumin Keizai Kenkyuu Kyokai, http://www.kkri.org
### Chapter 2. Two-gap Models and Time-series Analysis

### 2.1 Theories of Development Assistance

Development assistance can be defined as capital and technology transfers provided by industrialized countries to developing countries for the purpose of improving the welfare of the latter. Various economic models have been designed to explain how these transfers would affect the macro economies of the recipient countries. Eaton (1989) carried out an exhaustive review of the various theories of development assistance and foreign capital flows. We introduce some of them briefly in this section.

## (1) Static Trade Models

The World Development Report for 1985 discussed the reasons why official capital flows were essential for economic growth in the developing countries. They include: 1) information deficiency on the sovereign risks and investment opportunities in the developing countries; 2) long gestation period for investment as in social sectors such as education and civil works, deemed essential for development, would cause private capital to be undersupplied; 3) in compensating the private capital shortages, concessionary and long-term official capital flows would activate developing economies, and therefore 4) improve the welfare of the world as a whole.

The static two-commodity two-country trade model presented by Ohlin (1929) can be used to discuss “the transfer paradox”. The income effect of capital transfers in the recipient country would deteriorate the recipient’s terms of trade to create the necessary trade surplus for the donor country (see Figure 2-1). The answer to whether this deterioration in the terms of trade would lead to a trade deficit, and whether it would have an immiserizing effect on the recipient country is complicated. Jones (1985) argued that it would depend on the country’s production technology and consumption tastes.

Yano and Nugent (1999) created a theoretical model for 44 heavily-indebted countries that have tradable and non-tradable commodities, and conducted an empirical test on the hypothesis that capital transfers to a small country would increase the demand for, and consequently the production of, the non-tradable goods of the country. It would change the relative prices of commodities in favor of tradable goods, and thereby expand the trade deficit and lower the growth rate, causing the immiserizing effect on the recipient. Using data from 1970 to 1990, their test indicated that out of 44 countries, development assistance was positively related with the GDP growth rate in 20
countries, while it was negatively related in 24 countries, rendering the effects of assistance indeterminate.

## (2) Two-gap Models

McKinnon (1964), Chenery and Strout (1966), Findlay (1973), and others applied the Harrod-Domar growth model to show that foreign capital can raise the growth rate by raising the availability of capital for production, where the capital-output ratio is held constant (see Figure 2-2). The two-gap approach introduces the assumption that an imported commodity not produced domestically is essential for the production of investment goods. If the availability of foreign exchange to purchase these imported capital goods constrains the growth of the economy $ ^{9} $ , the growth would be exogenous, since it depends on foreign investment goods and technology. Foreign capital can be introduced in the form of official flows, or foreign direct investment (FDI).

On the other hand, if the above assumption does not hold, and the economy can domestically produce investment goods, then a shortage of domestic savings could be an essential constraint on growth. If the economy produces only enough consumption and investment goods to maintain the current production level, it does not save or grow. If the availability of foreign capital to compensate for the lack of domestic savings constraints the growth of the economy, we may call the growth endogenous, since the economy has technology and human resources of its own. The recent endogenous growth theory discussed by Lucas (1990), Romer (1990), and others asserts that knowledge or human capital accumulation drives a sustained growth of economy.

Imaoka (1998) discussed that the Asian countries that have grown rapidly in the 1990s initially took an exogenous and export-led development path. Later, the foreign exchange earned by strong exports increased their domestic savings and changed their development pattern to fit in the endogenous growth path. Therefore, he insisted that the impacts of the foreign assistance be studied carefully, based on the individual microeconomic analysis, not by the prevalent cross-country data analysis. Ishii (2001) argued that though the World Bank and other regional development banks had provided enough foreign capital to developing countries for filling the two-gaps calculated by the Harrod-Domar model, none of them successfully attained endogenous growth.

## (3) Optimization Models

Fukao (2000) formulated the performance of developing countries that maximize their welfare in analogy of a representative individual who maximizes the present value of