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Development aid − does it have an impact?

Budget support has created positive opportunities for economic growth in developing countries.

'Development aid has evoked debate in Finland, but most often only at the general level e.g. should aid be given at all or how much of it could be cut. There is generally very little talk of what development aid has actually helped to achieve. The reason for this may be that outside of individual project evaluations the impacts of development aid are difficult to measure,' says Kaisa Alavuotunki, who will defend her dissertation at the Aalto University School of Business on Friday 26 August 2016. Her doctoral dissertation seeks a solution to this matter by developing methods for determining the impacts of development aid.

The dissertation focuses on one of the modalities of development aid that is most difficult to measure: general budget support. As part of her dissertation, Ms Alavuotunki developed methods that can be used to separate the impacts of budget support from other development taking place in a country. The aim of the methods is to determine a so-called "counterfactual", i.e. what would have happened if aid had not been given.

The results of the research reveal that between the 1990s and 2000s budget support has revolutionised the criteria on the basis of which aid is granted. In the past, countries that granted aid focused specifically on their own commercial interests, whereas in the early 21st century the aid allocation criteria have become more need based.

'Budget Support has created positive opportunities for economic growth and increased government expenditure on health and education in recipient countries. In those countries where budget support has facilitated an increase in health care budgets, health indicators have developed in a more positive way than in other countries. This would also suggest that increased finances provided by budget support have been used correctly,' Ms Alavuotunki says.

The dissertation also examines the impact that the introduction of value-added tax has on income inequalities. The research helps understand the relation between the VAT adoption, governments’ revenue mobilisation and income distribution. The results indicate that despite it being flat rate tax, VAT has not increased income inequality, and particularly not in the world's poorest of countries, if taking into account the impact of reduced rates of VAT on consumption.

'Ms Alavuotunki's research is a valuable addition to public debate on the impact of development aid. Ms Alavuotunki's research is especially ambitious in that it resulted in the development of methods for measuring the impact of budget support,' Aalto University Professor of Economics Pertti Haaparanta.

Further information:
Kaisa Alavuotunki
[email protected]
tel. +358 41 522 3693

 

The Doctoral dissertation of Kaisa Alavuotunki in the field of Economics "Essays on Financing for Development" will be publicly examined at the Aalto University School of Business on Friday, 26 August 2016. The defence of dissertation will be held in Economicum building (address: Arkadiankatu 7, 2nd floor, Helsinki, Finland), starting at 12 o'clock.

Opponent: Professor Edward Samuel Jones, University of Copenhagen
Custos: Professor Pertti Haaparanta

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