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Poverty and growth: How aid can help

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This post is part of the Australia's aid budget 2012 debate thread. To read other posts in this debate, click here.

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1 May 2012 14:01


This post is part of the Australia's aid budget 2012 debate thread. To read other posts in this debate, click here.

Lawrence Haddad is Director of the Institute of Development Studies in the UK.

The debate in these pages on the case for aid resonates with one we are having in the UK: is aid about poverty reduction or economic growth? I have blogged about this topic in Development Horizons.

A March 2012 House of Lords report on the economic impact and effectiveness of development aid said that the role of aid should be to promote economic growth as the key way of reducing poverty. My response argued that (a) there are many ways to reduce poverty, (b) growth can be helpful, neutral or unhelpful to poverty reduction and (c) we have to find ways to get two-for-one responses — interventions that reduce poverty today and tomorrow.

Consider Indonesia. Real per capita GDP growth rates over the past ten years have taken GDP per capita at PPP from below $3000 ten years ago to nearly $4000 today. That is impressive real per capita growth — about 30% over the period. 

What has happened to child stunting rates (low height for age) over that time? They have fallen from 42.4% in 2000 to 39.3% in 2007 — a paltry 0.4 percentage points per year. Indonesia has the fifth-highest number of malnourished children in the world; at this slow rate of progress, it will have that dubious mantle for many years to come. In fact, it would take until 2030-2040 for Indonesia to achieve the MDG target for stunting (ie. halving the 1990 rate by 2015).

Spending aid on supporting the Government of Indonesia in its efforts to reduce stunting rates not only saves lives and reduces morbidity today, it also improves school attainment, labour productivity in young adulthood and reduces the likelihood of diet-related chronic disease later in life. GDP per capita a generation later can be substantially increased by these interventions. We know what to do to achieve this and we know the interventions are cost-effective. All that is missing is political leadership and commitment, backed by resources from donors and partner governments.

Indonesia is an economic powerhouse and a nutritional underachiever. By investing in interventions to reduce stunting it can become an overachiever in both areas. Aid can help support both outcomes by helping the government innovate, evaluate and tap into wider global peer support, resources and momentum such as the Scaling Up Nutrition movement.

Photo by Flickr user Defence Images.

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