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The Decline of Development Aid and the Rise of the Diaspora?

Extensive thought has been devoted to aid and development and to migration and development. We have thought less however about whether migration could replace development aid, how far and in what conditions. In a book I have just written called, “Development Without Aid: The Decline of Development Aid and the Rise of the Diaspora” (Anthem Press) I try to provide answers.

The principal objection to the replacement idea is that, predominantly, migrant remittances go to private consumption not to investment in public goods. Yet there is much evidence that aid itself has done a poor job on public goods and gets diverted into (conspicuous) consumption, whereas a diaspora can, in fact, provide public goods, while the consumption it generates goes more to basic needs. 

My instincts about the problems of development aid grew up with me in British Colonial Nyasaland; deep down therefore the book is based on hunch as much as evidence. But there is much evidence - manifested in well-documented problems of aid fragmentation, dependence, the breakdown of links between governors and governed, clientelism and inducement to corruption. Other systemic issues arise such as the Resource Curse whereby high Aid-to-GNI ratios bid up exchange rates and undermine exports. But beyond these issues the problems of aid are fundamentally about power relationships and ‘ownership’.

Macro aid-growth research has yielded a surplus of studies but a deficit of operational conclusions. Micro-evaluation has yielded insights but not a general understanding of what can be done, where and when. Randomized Impact Evaluation is costly, error-prone and unable to address the fundamentals. The aid-optimist camp has estimated that development aid at 10% of GNI boosts growth by 1% per annum. But this is nowhere near what is needed to bring the poorest countries, mostly in Africa, into convergence with Asia, and the aid-pessimists think that 1% is too high. Accordingly the poor have to find other pathways out of poverty.

Relatively recently the World’s diasporas have emerged. Over 215 million first generation ‘permanent’ migrants now live in host countries. Remittances have risen significantly faster than migrant populations which have risen faster than the world population. By 2014 they will surpass half a trillion dollars, four times official development aid. In Sub Saharan Africa remittances have doubled since 2006 and on a realistic count significantly exceed aid. The average skill levels and incomes of migrants have also risen and their average educational levels exceed those of many rich countries including the US. Increasingly diaspora flows are being invested rather than consumed.

The potential benefits of the diasporas to their home countries consist of: 1) skills and knowhow; 2) return of flight capital; 3) remittances; and, 4) savings in host countries available for home investment. Foreign investors are also more likely to invest if there are migrants at senior levels in their organizations. Many Governments, such as India, have started to attract back their foreign citizens. The key point is that diaspora investment is a quasi-indigenous resource flowing through private initiative, not an alien resource flowing through public bureaucratic channels.

There are many questions. Will poor countries adequately encourage business? How committed are diaspora investors? Can flows concentrated in a few countries result in broad poverty reduction? These and others the book tries to answer, along with the ‘bottom line’ question: is a new development dynamic in play that contrasts favorably with the dysfunctional aid system that has been in place for 50 years.

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