![]() There could also be a peer pressure effect whereby the volume of aid given by a donor depends on what other (particularly, relatively large) donors are giving so that a reduction in aid volume by large donors like the US might generate a downward 'bandwagon' or spiral effect on total aid volume. It is also likely that regimes in countries where there is great concern for the domestic population that are poor, like in the Scandinavian countries, would also be more generous in giving aid to developing countries. Tight budgetary conditions in donor countries and regime changes between right and left wing governments are also possible causes. This could have reduced international strategic and politics-motivated foreign aid, especially on the part of large donors like the US. In this regard, one possible factor was the end of the cold war that occurred in the early 1990s. Notwithstanding some recent attempts at identifying the factors responsible for the observed trend decline in donors' generosity as well as the reasons why some donors are less generous, at a point in time, than others, one could still only speculate as to the actual causes. Possible Causes of the Declining Trend in Aid Volume All donors (except five small ones, namely: Denmark, Greece, Ireland, Luxembourg and Ireland) recorded trend declines in their generosity propensity during 1990s while Australia and the US even recorded contractions in all the three decades. In growth terms, the generosity ratio rose in the 1970s at an average of 0.7 percent per year but fell at an average of 0.3 percent per year in the 1980s and 4.7 percent per year in the 1990s. The US, which is the most parsimonious of the donors, gives only 0.13 of a cent as aid out of every dollar GDP earned during the 1990s, down from 0.25 of a cent given in the 1970s. ![]() While the UN-prescribed aid target is 0.7 percent of GDP, donors (except Denmark, Netherlands, Norway and Sweden) have observed the target only in breach. ![]() As shown in Table 1, the aggregate generosity ratio of 0.31 percent in the 1970s rose marginally to 0.32 percent in the 1980s, only to fall substantially to 0.28 percent in the 1990s. But a clearer picture of the declining trend is portrayed by considering the aid generosity ratio, defined as the fraction of GDP given as ODA. Of 22 DAC-member donors, nominal ODA from 11 of them registered declining trend during the 1990s. This slowed to just over 8.4 percent average rate of annual growth in the 1980s while, in the 1990s, it contracted at an average rate of over 1 percent per year. ![]() In the 1970s, the nominal ODA volume witnessed a phenomenal increase, rising by over 14 percent per annum on average. But while the membership of the DAC has increased from 17 in the 1970s to 22 in the 1990s, the aggregate volume of ODA hardly kept pace. As shown in Table 1, the bulk-about 98 percent during 1991-2000 period-of ODA is provided by the members of the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD). The volume of ODA has been on a steady decline, especially during the past decade. It is loosely and popularly referred to as 'foreign aid' and constitutes the main instrument of official finance from the developed to developing countries. Overseas Development Assistance (ODA) refers to development-motivated official foreign grant or loans-that are concessional in the sense that the grant element, evaluated on the basis of 10 percent discount rate, is not less than 25 percent of the loans' face value. ![]()
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