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Understanding Aid: Explanatory paper on international and Australian aid

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Introduction

The world’s wealthy countries and some emerging economies give aid to poorer countries in the name of economic development and to help overcome the problems they face.

In most of the developing world, economic and social indicators have improved considerably in the past three decades. The proportion of the world’s population living under the World Bank’s lowest global poverty line fell from 42 per cent in 1981 to 11 per cent in 2013.1 Aid and international development has played a role these improvements.2 Aid is an important way wealthier countries can help poorer countries develop. Approximately $175 billion dollars was given as aid by donor governments in 2015, which equates to 0.24 per cent of global income.

This paper provides an overview of international aid and Australian aid, presenting key data and trends, as well as examining aid effectiveness.

Firstly, it offers a broad overview of international aid volumes, an introduction to broad questions on why and how aid is given and sets out five principles for effective aid. Secondly, it looks at these elements in the Australian context and examines the benefits of effective aid.

TERMINOLOGY AND SCOPE

Throughout, the paper refers to Official Development Assistance (ODA). ODA is government aid that meets certain criteria, such as being given to eligible poorer countries.3 It is also what is commonly understood as ‘foreign aid’, given by Governments or ‘Australian aid’ given by the Australian Government.

In analysing international aid, the paper retains a focus on members of the OECD’s Development Assistance Committee (DAC). The DAC are a group of wealthy donor countries, which includes Australia. The focus on ODA given by the DAC is maintained throughout the paper as member countries provide reliable information on the aid they give and make up approximately three quarters of the aid given by donor governments.

The paper also notes the rising importance of nonDAC donors such as China.