Developing Countries’ Foreign Aid And The Future Prospects

The current international foreign aid architecture is established and dominated by DAC countries, whose aid is allocated to developing countries and featured as North-South Cooperation. However, the emerging donors are gaining more and more attention in recent years. The foreign aid from developing countries to developing countries is featured as South-South Cooperation. The developing donors insist on the principles of solidarity and impose no political conditions, committed to promoting economic development and poverty reduction in recipient countries while seeking mutual benefits at the same time. We call it Growth-Oriented assistance mode.Taking China, India and Brazil as examples, this paper elaborates the principles, motives, allocation and management system of developing countries’foreign aid, and evaluates the aid effects from perspectives of aid effectiveness and development effectiveness. After analyzing the mechanisms through which developing countries’ aid may pose positive influence on the recipients’economic development and poverty reduction, this paper examines the relationship between aid and growth rate in GDP per capita as well as aid and gross capital formation (gross capital as percent of GDP) by using system GMM method, on the data of China’s development aid to25African counties during the period2000-2012. This is the first try of assessing the economic effects of developing countries’foreign aid empirically. It is shown that China’s aid has positive effects on African countries’growth rate in GDP per capita and capital formation, of which the latter relationship is significant statistically. China’s foreign aid is effective in development.Also, this paper compares the foreign aid of Northern countries and Southern countries in motives, principle and modes, finding out that they have differences and similarities, on which we discuss the future prospects of developing countries’aid. We conclude that emerging donors will not be members of DAC in all likelihood, nor they are able to build aid architecture of their own. Having more communication and cooperation with developed donors is favorable for both parties, and Triangular Cooperation is one of feasible paths to build global partnership.