Journal Article
Do Pacific Countries Receive Too Much Foreign Aid?

Pacific countries currently receive some of the world’s highest levels of aid, relative to the size of their economies. Levels of aid that account for more than one-third of GDP are not uncommon. The rising global aid budgets and increasing assistance expected from emerging donors such as China, Taiwan and India imply that aid levels in the Pacific will increase. Increases in the incidence of relative and in some instances absolute poverty—in its economic and other dimensions—provide an a priori case for increasing aid to the region. This case becomes stronger given the findings of recent empirical studies of aid effectiveness in the Pacific. These studies conclude that economic growth in the region would have been lower in the absence of aid (Gounder 2001; Feeny 2006a, 2006b; Sugden and Pavlov 2006).1 While this does not suggest that all the region’s problems can be fixed by aid and there are many aspects of aid delivery that require fundamental reforms, these findings are consistent with the view that poverty in the Pacific would be higher in the absence of aid and the region’s poor economic performance should not be attributed to aid. This is also consistent with the findings of the majority of other studies that belong to the now rather large aid-growth empirical literature (for comprehensive surveys, see McGillivray et al. 2006; Addison et al. 2005; Clemens et al. 2004; McGillivray 2003; Morrissey 2001)