Did USAID promote economic growth prior to the 2011 Egyptian Revolution?
| Date | 01 October 2018 |
| Pages | 219-235 |
| DOI | https://doi.org/10.1108/JCEFTS-05-2018-0013 |
| Published date | 01 October 2018 |
| Author | Mostafa E. AboElsoud |
| Subject Matter | Economics,International economics |
Did USAID promote economic
growth prior to the 2011
Egyptian Revolution?
Mostafa E. AboElsoud
Department of Economics, Suez Canal University, Ismailia, Egypt
Abstract
Purpose –The effectivenessof foreign aid, specifically,the role it plays in promoting growth in developing
countries, is one of the most debated issues in the field of economics. Despite the enormous resources
channeled to developing countriesover the past decades, only limited tangible results can be observed.The
literatureon aid effectiveness is vast. Yet, the results are inconclusive.The purpose of this paper is to examine
the impact of economic aid provided by the USA on Egyptian economic growth before the Egyptian
Revolutionin 2011, more precisely, Mubarak’s era.
Design/methodology/approach –The paper uses a vector autoregressive (VAR) model and Granger
causality test to answer the questionof whether the US Agency for International Development (USAID)has
been conductiveto growth in Egypt over the period of 1981 to 2010.
Findings –The resultsreveal that USAID has no impact on the Egyptian economic growth.
Originality/value –The recommendations put forward by this paper are measures that Egyptian
policymakerscan undertake to increase aid effectiveness. These measuresinclude the reduction of corruption,
more active participation in delivering aid, greater accountability for aid outcomes and coordination ofthe
activitiesof aid agencies.
Keywords Egypt, VAR, Economic growth, Foreign AID
Paper type Research paper
1. Introduction
Foreign aid is a topic that has, formany decades, sparked heated debate. Aid allocation, the
role of policy, conditionality and the micro-macro paradox are prominent among the many
facets that constitute the debate surrounding this increasingly important aspect of modern
international relations. Aid relationships have long existed and date back to the nineteenth
century. However, the post-Second World War reconstruction projects mark the beginning
of aid activities, as we now know them. The United Nations Relief and Rehabilitation
Agency, the Europe-reconstruction-loan activities of the World Bank (2018a,b) and the
Marshall Plan were all part of the momentum that was created to reconstruct war-ravaged
Europe but later evolved into institutions and schemes that are committed to helping
underdevelopedcountries achieve development (Hjertholm and White, 2000).
Together, multilateral aid agencies and individual donors, throughout a period of over
half a century,have channeled resources worthbillions of dollars to the developingworld. In
1960, accordingto the Query Wizard for International DevelopmentStatistics (QWIDS), total
aid received by developing countries amounted to about US$4.7bn. In 2010, aid
disbursementsincreased to US$164.5bn,which reflects an increase of nearly35 times. Table I
presentsa few basic facts about the evolutionof international aid from 1980to 2010.
JEL classification –C32, F35, O11, O55
2011 Egyptian
Revolution
219
Journalof Chinese Economic and
ForeignTrade Studies
Vol.11 No. 3, 2018
pp. 219-235
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-05-2018-0013
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
However, after decades of efforts and billions in spending, it seems that the development
outcomes of aid are below expectations (Collier, 2007;Easterly, 2006;Williamson, 2010).
Therefore, many voices have risen to question the “effectiveness”of aid. Nonetheless, to
assess aid effectiveness,we need to be clear as to what aid is meant to achieve. The two most
obvious objectives of aid relate to the immediate alleviation of suffering through
humanitarian aid and to the promotion of growth and poverty reduction through
development. On the other hand, in making the decisionto offer aid to developing countries,
donor countries have other considerations that may even be more important than the
recipient countries’economyor humanitarian needs. These are the donor countries’political,
strategic and commercial interests. Moreover, even if we assume that donor countries are
motivated only by the desire to help poor countries achieve development, there is still the
question of what is meant by development. In addressing this topic, researchers generally
proxy development by growth and use a measure of income per capita to evaluate the
effectiveness of aid. Although subject to shortfalls, this approach will be adopted in this
paper.
Furthermore, by having brief overview on the growth performance of the Egyptian
economy in the past 50 years, we can certainly notice how the US Agencyfor International
Development (USAID) fits into the picture. Before 1973, the USA had maintained weak
relations with Egypt. Over the 20 years prior to 1973, USAID to Egypt totaled US$884.3m
(Sharp, 2012). In addition to its being small, aid was subjected to fluctuations and even
cessation as in 1956 and 1966. The situation changed, however, after the 1973 war when
Sadat expressed his interest in maintaining friendly relations with the USA. The USA in
Table I.
Key facts on the
evolution of AID,
1980-2010
Year 1980 1990 2000 2010
Total AID (in US$ billions) 24.50 77.87 61.35 164.48
Percentage by sector
Education 13.9% 9.3% 8% 8.2%
Health 5.17% 3% 4.6% 6%
Government and civil society 1% 3.4% 7% 11.3%
Economic infrastructure and services 18% 18.9% 17.7% 17.6%
Production sectors 24.8% 15.3% 8.2% 8.2%
Commodity AID/general program assistance 10.5% 13.4% 7.7% 3.4%
Humanitarian AID 1.8% 1.5% 4.9% 8.2%
Other: “which includes”24.83% 35.2% 41.9% 37.1%
Social infrastructure and services
Population policies
Water supply and sanitation
General environment protection
Percentage by donor ([3])
Multilateral AID agencies 4.5% 3.7% 13% 8.4%
Bilateral donors of which: 95.5% 96.3% 87% 91.6%
United States 16.7% 29.8% 20% 24%
United Kingdom 6.3% 4.4% 7.2% 6%
France 9.2% 9.6% 7.4% 10.2%
Germany 16.2% 10% 9% 10.7%
Japan 11.4% 15.4% 27% 14.2%
Other 40% 30.8% 29.4% 34.9%
Source: Calculated from data retrieved from QWIDS
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