It is nearly fifty years since foreign official development assistance surged as one of the most important factors of economic growth among developing countries. Foreign aid is increasingly a facilitator for change, and it is helping to create conditions in which poor people are able to raise their incomes and to live longer, healthier, and more productive lives. Over the recent decades the total value of aid disbursed to developing countries has multiplied 3.6 times, i.e. from US$ 33.7 billion in 1960 to US$ 157,.6 billion in 2017.
Although we have to consider that a large number of studies have already examined the effects of aid among African countries, however there is no literature discussing aid’s effects in Tajikistan. Tajikistan is the subject of the article Patterns of Official Development Assistance in Tajikistan: effects on growth and poverty reduction just published in Revista Brasileira de Política Internacional – RBPI (Volume 63 – N. 2 – 2020). The Country by has been selected by authors as the best case study since this country has received a considerable amount of development assistance from China (as a Central Asian country neighbor of China). Moreover, the paper asserts that Tajikistan case is the best example for the interpretation of South-South cooperation, as the former Soviet Republic that can theoretically enjoy from both Russian and Chinese aid. Therefore, in this paper authors analyze the main features of ODA flows recently received in Tajikistan, in order not only to infer conclusions about the nature of Tajik aid but also to suggest policy recommendations for EU as well as OECD countries regarding ODA effectiveness.
The paper analyses the effect of aid on the growth and poverty reduction in Tajikistan employing annual data from 1998 to 2016 with the purpose of testing the following hypotheses:
H1: The volume of foreign aid is associated with a higher standard of living (higher per capita GDP).
H2: Foreign aid has been able to reduce poverty levels among recipient countries.
H3: In case South-South cooperation upsurge has already become a reality, it will improve the standard of living of the population of aid receiving countries
However, according to the authors it is too soon to examine whether the South-South Cooperation effect will be more effective for economic growth and poverty reduction; however, it is still essential to evaluate the recent role played by ODA from OECD/DAC countries this regards. The main providers of multilateral aid are still the OECD/DAC countries; with regard to the bilateral aid channel, China in particular plays the most relevant role. Despite China has become an important provider of aid to Tajikistan, however authors show their concern about the way Chinese development assistance is granted. The paper supports the opinion of Chin and Frolic (Chin G.T., & Frolic B.M. “Emerging Donors in International Development Assistance: The China Case. Partnership and Business Development.” York Centre for Asian Research, Toronto, (2007), asserting that local companies are endangered because Chinese firms bring labour with them; in consequence few jobs are created and no technology transfer takes place. In this regard, authors affirm that Chinese labour policy leads to a paradox in the case of the Tajik economy, because Tajik workers migrate to Russia whereas Chinese workers occupy jobs in construction projects and land farming in Tajikistan.
Although the paper benefits from recent literature development, authors assert that the empirical evidence regarding the role of foreign aid in the growth process among developing countries shows mixed results. At the same time, the paper states that, based on the listed review of empirical studies, it is quite clear that aid may not always be successful in promoting economic growth and poverty reduction. A good institutional environment has been considered an important determinant in the development process, since better government institutions are linked with both economic growth and poverty reduction among recipient countries.
In relation to the econometric application and the model specification, the model estimation has been appropriately developed and the choice of variables corresponding to the panel of data is properly justified. To carry out the analysis, authors have utilized the Vector Error Correction Model, Ordinary Least Squares, and Fixed Effect models (indicating the strengths and weaknesses of Vector Error Correction Model approach). The model estimation has been carried out following analytical techniques such as unit root test, Augmented-Dickey Fuller test, ADF-GLS (generalized least squares) test, KPSS test, Variance Decomposition, Impulse of Response Function, and CUSUM and CUSUMQ stability tests.
The paper calls for Tajik governments and decision-makers to acknowledge properly the effect of aid and urges them to be responsible for the accountability of ODA use in the country. Particularly, those accountability levels must be enforced and ODA should be channeled to favor economic growth and social sectors, with the purpose of reorienting ODA in order to optimize its impact on economic growth and poverty reduction in the country. However, authors assert that in spite of the poor level of institutional quality in Tajikistan, donor countries provide aid to Tajikistan through embassies, agencies for cooperation and development, banks, and other government agencies in multilateral and bilateral channels.
Based on aid data available for the period, this study confirms its two first hypotheses and concludes that there is a positive relationship between ODA and economic growth and a negative effect of ODA in poverty levels, once considered the institutional environment in Tajikistan. However, authors point out that the results tend to put in doubt the third hypothesis put forward. In this regard, authors argue that although South-South Cooperation has become of paramount relevance in Tajikistan, however, the way through which aid has been conceded does not allow authors to think that these finance flows are going to create new job opportunities and a higher standard of living in Tajikistan. At the same time, the paper outlines that South-South cooperation in Tajikistan remains far from being considered as a win-win phenomenon, due to several factors. Among those factors, we must highlight the government’s high indebtedness with China, a strong commercial dependency with China, lack of a genuine industrial or agricultural development program, the low quality of institutions as well as some of the conditions required to ease the financial flows.
The paper concludes underlying that this kind of research can help better understand the future effectiveness of the so-called South-South cooperation; this is not but a case study that could shed light on the future implications of this relatively new genre of development cooperation. Authors suggest starting new studies in order to analyze and compare aid concession to the other Central Asian countries, aimed at acquiring a broader vision for the entire region. Moreover, a geographical extension of this kind of research is recommended with the purpose of observing the behavior of South-South cooperation in different parts of the world, namely aid behavior in Asia in comparison with Africa or South America.
Read the article
Abduvaliev, Mubinzhon, & Bustillo, Ricardo. (2020). Patterns of Official Development Assistance in Tajikistan: effects on growth and poverty reduction. Revista Brasileira de Política Internacional, 63(2), e006. Epub August 07, 2020.https://dx.doi.org/10.1590/0034-7329202000206
About the authors
Mubinzhon Abduvaliev – University of the Basque Country UPV/EHU, Applied Economics V, Bilbao, Spain (firstname.lastname@example.org)
Ricardo Bustillo – University of the Basque Country UPV/EHU,Applied Economics V, Bilbao, Spain (email@example.com).