Comments by Ronald B. Davies, on Motivations for Bilateral Aid Allocation in Korea: Humanitarian, Commercial, or Diplomatic?

Field: Economics, Econometrics and Finance (Social Sciences)

Ronald B. Davies: For centuries, foreign aid has been a feature of the economic landscape. In particular, the use of aid as a tool for promoting development took hold during the colonial era as the colonial powers provided monies to their colonies in order to expand their economic output. In large part, these early donations were a result of competition between the colonizers aiming to solidify their overseas positions and, indeed, donors continue to provide aid to strengthen their economic and political interests. That said, during the 20th century the intent of aid gained an important humanitarian component. In particular, overseas development assistance (ODA) is provided with the explicit goal of improving the economic development of the recipient with the spillover effects to the donor becoming only part of the equation.Although the average effectiveness of ODA, and the role of recipient characteristics in that effectiveness, is of great debate, clear-cut examples of ODA working to achieve economic advancement certainly exist.1 In particular, South Korea is held up as an exemplar of what can be achieved. A particularly symbolic feature of Korea's advancement is its shift from a major recipient of ODA to a major donor in 2009. Although widely discussed, there is little empirical work specifically on the Korean case, a gap that Park and Lee fill by examining the determinants of Korean ODA.In short, what they find is that although Korea is unique among OECD countries in its transition from recipient to donor, its overall patterns of aid are essentially the same as those of long-standing donors (i.e. a combination of economic, humanitarian, and political motives). Although there are some small differences in the Korean pattern of giving and the generally accepted guidelines, these differences are fairly small and likely reflect unobserved issues both domestic and international.If Korea looks more or less like the other major donor countries, then why should anyone care about these results? It is precisely because Korea's aid patterns look like those of the other donors that this matters. This matters for two reasons. The first is in the level of ODA. According to the OECD, Korea's level of ODA is currently roughly US$ 1.75 billion.2 In absolute amounts, this puts it just ahead of Finland and slightly behind Spain. Relative to gross national income (GNI), in 2013 Korea ranked 23rd in the OECD, again just behind Spain but well below Finland. When looking at the ODA/GNI ratio, there is a clear break between that of the poorer OECD members and their wealthier counterparts, with the latter giving more aid relative to income (although the United States is a notable exception). Nevertheless, Korea is already a sizable donor and will likely increase its total aid at a faster rate than its income growth. This is good news for the world's poor as it suggests that the assistance they receive from Korea will grow over time.The second reason is that the pattern of Korean aid is largely the same as other countries—namely, it focuses on the poor, those actively engaged with international markets, and those with which it has political ties. The first of these clearly matters for humanitarian reasons. The latter two matter for economic reasons as these traits are typically found in countries where aid is effective and there is a strong potential for economic growth. If the Korean pattern of giving differed considerably from that found elsewhere, this could be a cause for concern because it might suggest that, as countries become donors, they require a learning period during which they learn how to identify both need and potential. As such, learning would create the potential for wasted efforts during the interim; this, too, is good news for recipient nations.These results also suggest the potential for good results from other countries making the move from recipient to donor. Between 2010 and 2012, China provided nearly US$ 14.5 billion in aid, which, although small relative to its economic size, is still a non-negligible amount of money (Jianbo and Xiaomin 2014). Similarly, India's Development Partnership Administration has pledged US$ 15 billion in foreign aid during 2012–17. Despite the potential good of these movements, the aid programs of both countries have not gone without criticism. China has been attacked on two fronts. First, whereas most donors concentrate efforts in the local region, China's focus on Africa has been criticized as a move intended not for the promotion of the African economy, but as a bribe to guarantee access to Africa's primary resources. Second, some have questioned the value of certain projects (such as football stadiums in Angola) for which the Chinese donations have been earmarked. India, meanwhile, has faced criticisms because its ODA to Afghanistan, a nation where there is a clear humanitarian need, happens alongside military aid, something potentially destabilizing in the region.The results of Park and Lee, however, give reasons to believe that these may well be small bumps in the road and that one can reasonably hope that Chinese and Indian ODA will develop into the patterns found elsewhere. Given the large sums, this is also good news for the developing countries. Thus, although there is still far too long a road ahead in the fight against global poverty, Park and Lee's study on the Korean transition from recipient to donor provides some hope in achieve a more equitable and prosperous situation for the world's poorest countries.