How Important are Private and Non-DAC Sources of Global Development Finance?

The Hudson Institute recently published figures for the 2011 Index of Global Philanthropy and Remittances, which AidData has posted on its Research Datasets page.  The Hudson Institute's dataset contains figures for total official and estimated private flows from 1991-2009, including remittances, private investment, and philanthropy. It also provides bilateral remittance data for 2010. 

Here we briefly review the data to track overall trends in global development finance over the last twenty years.  The results are provided below:

Global development finance by flow

The data for private flows, which include private investment, private philanthropy, and remittances, are derived from the Hudson Institute’s report, while the data for bilateral and multilateral flows are derived from an export. The most striking overall trend is the increasing role of private flows in global development finance.  Private flows have exceeded traditional aid flows for the past 8 years.  In 2009, remittance flows exceeded DACbilateral aid flows by nearly $60 billion.  Whether this is attributable to an actual funding increase or an improvement in remittance data collection, it highlights the importance of these flows. Much of the existing aid literature focuses on "official transfers" from bilateral and multilateral aid agencies. This graph calls attention to the need for more research on the motivations and effects of private sources of global development finance.

At the same time, one must interpret the graph above with caution. Non-DAC bilateral and multilateral flows appear to represent a tiny fraction of overall global development finance. However, many of the largest sources of non-DAC development finance -- China, Venezuela, Russia, Iran, Saudi Arabia -- do not participate in the existing global aid reporting system. China, for example, may provide anywhere between $1.5 to $25 billion a year in global development finance, and none of these flows are captured in the graph above.

Additionally, one must remember that the mix of development funding sources can vary significantly across recipient countries. Consider Mauritania. In 2007, Mauritania received approximately 61% of its (reported) bilateral and multilateral aidfrom non-DAC donors. However, these estimates do not capture substantial unreported transfersfrom Libya and Iran. Nor do they include private investment, private philanthropy, and remittances.

This last point merits special attention. While the Hudson Institute is currently able to provide overall global estimates of private investment, private philanthropy, and remittances, these data are not available at the recipient-country-year level. The absence of country-level data on private investment, private philanthropy, and remittances almost certainly distorts the overall picture of global development finance flowing into a given country. Haiti, for example, received an estimated $2.1 billion from private charities following the 2010 earthquake. If one considers that amount in relation to the total net ODA received in 2010 ($3.07 billion), the need for a more comprehensive development finance reporting system comes into sharper resolution. Nepal provides another interesting example. It received $3.5 billion in remittancesin 2009, which dwarfs the total amount of ODAit received in the same year.

This pattern holds for donor countries as well.  While private philanthropy represents a fairly small portion of giving in France (an estimated 8% of the total ODA budget in 2009), funding from private charities equaled 130% of ODA in the United States in 2009.  Clearly, this is an area ripe for future research, especially as the data for tracking private and non-DAC sources of development finance becomes richer and more accurate.

This post was contributed by William & Mary students Ben Buch ’12 and Kevin McCrory ’12, both AidData research assistants.

Tags: south-south cooperationprivate flows