Inside the numbers on U.S. foreign aid

Tyler Cowen at the Marginal Revolution links to Carol Adelman‘s new Foreign Affairs essay, “The Privatization of Foreign Aid: Reassessing National Largesse.” The key paragraph:

All in all, the United States is the most generous. In addition to giving more foreign aid, in absolute terms, than any other country, it has long provided the most foreign direct investment to the developing world and generated the bulk of the world’s research and development, spurring long-lasting economic development and saving lives through better food and medication. The United States also contributes the most militarily, guaranteeing the security necessary for growth and democracy. The big point–that the totality of U.S. foreign assistance far exceeds U.S. ODA [official development assistance]–corrects the criticism that the United States is stingy in giving abroad.

Pejman Yousefzadeh and Glenn Reynolds, reading Tyler, conclude that the U.S. is the most generous nation in the world. Longtime blog readers are aware that I agree with much in quoted paragraph, which was why I took the Center for Global Development (CGD) to task for calling the U.S. a miser earlier this year. However, my Tech Central Station article on this — which did get results from the Center for Global Development — did not mention the factoring in of private aid flows as a measure of generosity. On this, Adelman says:

[A] conservative estimate, based on surveys and voluntary reporting, puts annual private giving around $35 billion. Even this low-ball figure is more than three and a half times the amount of official development assistance (ODA) given out in a year by the U.S. government. (emphasis added)

Was I just thick-headed in not raising this point? Well, no. If you read p. 32 of the primary technical paper that supported the CGD rankings — they do deal with this:

A recent argument from the U.S. government in defense of its aid policies is that the United States, while a relatively stingy supplier of official aid, is a huge source of private charitable contributions to developing countries (USAID, 2003), which ought to be weighed in any comparison of donors. Much of this flow is tax deductible and/or tax exempt in the United States, and so is a credit to U.S. policy. The U.S. Agency for International Development estimates these flows at $15.6–23.7 billion per year (USAID, 2003, p. 146). To judge the importance of this consideration, we experimented with treating these flows as if they were an increment to aid—in the case of the United States only. We treated them as aid that is completely untied and allocated with the same administrative cost and selectivity as official U.S. aid. The effect…. left its rank unchanged at 20 [out of 21 countries]. (emphasis added)

Now, the key question is whether private aid flows are in the $15-23 billion range — which don’t seem to affect the rankings all that much — or are nearly double that at $35 billion — which one would expect to have a more appreciable effect. I went to the referred source, USAID’s “Foreign Aid in the National Interest,” specifically Chapter 6, p. 146. What I found is that Adelman’s figure is accurate if you include foreign remittances, and the CGD’s figure is correct if you don’t include them. Remittance flows are clearly important, but counting them as examples of American generosity strikes me as a bit off-kilter. Americans aren’t remitting this money — foreign nationals are. The U.S. deserves a measure of credit for permitting foreign workers into the country and sending money back — indeed, I agree with Tyler Cowen that remittances are, “the most effective welfare programs ever devised.” However, this policy is of a different kind than either public or private aid. I don’t think Adelman is incorrect in her core thesis. But lumping remittances in with charity flows exaggerates the generosity of Americans as a people.