Summary

Research Report: Investigates the impact of foreign aid on the rural sector in Melanesia, whether different types of aid impact differently on the rural sector and whether aid effectiveness is contingent upon a number of recipient characteristics.

Description

Author: Simon Feeny

This report investigates the impact of foreign aid on the rural sector in Melanesia, whether different types of aid impact differently on the rural sector and whether aid effectiveness is contingent upon a number of recipient characteristics.

Results show that while the rate of inflation, real exchange rate appreciation, negative export price shocks, and environmental shocks all have a negative impact on the rural sector in Melanesia, evidence suggests that foreign aid has had little or no impact.

There is, however, some evidence that foreign has impacted positively on economic growth in these countries. Findings indicated that aid grants should be favoured over aid loans and that bilateral aid is more effective at spurring economic growth than multilateral. There is also evidence that suggests technical assistance is beneficial to economic growth, even in the short term.

The report argues that there is a strong case for greater assistance to rural areas especially given the importance of agriculture to Melanesian economies, the fact that the majority of the region's poor live in rural areas and the vulnerability of the sector to price shocks and environmental disasters.

Other policy implications include continuing to help Melanesian recipients provide up-to-date, reliable and accurate statistics to help track development progress and for donors to report aid flows at a greater degree of disaggregation.

The author also suggests that future research should investigate the impact of foreign aid on the recipients' real exchanges rates and on the dynamics of aid, examining how long different types of assistance take to have their desired impact.

Impact of Foreign Aid on the Rural Sector in Melanesia [PDF 474KB]

Available: Electronic version only

This report was commissioned by AusAID. The findings, interpretations and conclusions expressed in the report are those of the authors and do not necessarily reflect the views of AusAID or the Australian Government.

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