- Home
- Publications
- Foreign Aid Makes Good Macroeconomic Sense
Foreign aid makes good macroeconomic sense
This is a preview from the Quarterly UK Economic Outlook, August 2021.
On 25 November 2020, the UK government took the decision3 to reduce the budget for foreign aid from 0.7 to 0.5 per cent of gross national income (GNI) in 2021. On 13 July 2021, Parliament voted in favour of maintaining these cuts, following the Chancellor’s Statement4. This reduces the amount of aid available in 2021 by approximately £4.5billion compared to what otherwise would have been the case. The announcement does not meet commitments in the main party election manifestos. Nor does it meet targets set in the 2015 International Development Act (although this Act allows for deviations in a single calendar year under certain fiscal circumstances).
The aid cut fails to take into account macroeconomic spillover effects. Holland and te Velde (2012) simulated the effects of aid on both donor and recipient countries using the NiGEM model. They modelled the empirical effects of aid on growth and productivity by applying historical social rates of return from infrastructure spending (Briceño-Garmendia, Estache, and Shafi k, 2004) and econometric estimations of the effects of Aid for Trade on reducing trade costs (Cali and te Velde, 2011).
The analysis in this Box has been prepared by NIESR's Dawn Holland and Dirk Willem te Velde from the Overseas Development Institute. You can download the full analysis clicking on the pdf document.
Related Blog Posts
Public Debt Sustainability and Fiscal Rules
Stephen Millard
Benjamin Caswell
05 Feb 2024
4 min read
Related Projects
Related News
Call for Papers: Lessons From Quantitative Easing & Quantitative Tightening
09 Feb 2024
1 min read
Related Publications
Job Boom or Job Bust? The Effect of the Pandemic on Actual and Measured Job and Employment Growth
07 Feb 2024
UK Economic Outlook Box Analysis
Implications of the Transition from Defined Benefit to Defined Contribution Pensions in the UK
07 Feb 2024
UK Economic Outlook Box Analysis
Inflation Differentials Among European Monetary Union Countries: An Empirical Evaluation With Structural Breaks
20 Nov 2023
National Institute Economic Review