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We thank Abbassian Abdolreza, Rina Bhattacharya, Aleš Bulíř, Chris Barrett, Paul Cashin, Bikas Joshi, Menachem Katz, Noureddine Krichene, Wojciech Maliszewski, Srobona Mitra, Paulo Neuhaus, Michel A. Robe, Stéphane Pallage, Tobias Roy, Ratna Sahay, Shahla Shapouri, George Simon, Thierry Tressel, Luis Valdivieso, and Mario Zejan for helpful discussions and comments on an earlier draft. George Simon and Giampiero Lucarini (WFP) generously provided data on food aid.
Estimates indicate that the current shortfall in cereal crops in Africa could amount to 3 million tons, equivalent to about $750 million (Price (2002)).
Worse, the empirical evidence indicates that, by some measures, more foreign aid has flowed into more corrupt countries or countries with poor management of financial resources.
Buliř and Hamann (2001) find that the correlation between aid and fiscal revenue is positive, though mostly insignificant.
The IMF provides temporary food financing under the Compensatory Financing Facility (CFF). Countries facing temporary difficulties from higher cereal import costs may seek support from the CFF, formerly the Compensatory and Contingent Financing Facility (CCFF).
It is difficult to quantify the value of nonmonetized food aid flows for the budget. In effect, these flows are a type of implicit subsidy provided by the government. In Georgia, for example, the bulk of food aid was passed on to consumers through sales on domestic markets in the early 1990s. Because of price controls, the government provided an implicit subsidy on the sale of bread by state-owned outlets. This subsidy amounted to as much as 7 percent of GDP in 1993 (Wang (1999)).
An important exception is a study of the cyclicality of cumulative food aid from several major donors by Shapouri and Rosen (2001), for a fairly large sample of countries. However, instead of looking at cumulative food aid that flows into each recipient economy, they compare the sum of consumption shortfalls (or deviations from an 18-year trend) for 62 low-income countries with the sum of food aid received by these countries, between 1981 and 1999. They find that food aid covers a significant share of the consumption shortfall as a whole. However, because food aid has fallen in absolute terms over time, the share of the consumption shortfall covered by food aid has also decreased.
The details of the regression results are not provided. This summary is based on the author’s own description of the results.
See previous footnote.
The impact of food aid on domestic food production has also attracted a great deal of attention (see Lavy (1990) and Lahiri and Raimondos (1996)). An assessment of this issue is beyond the scope of this paper.
Given the uncertainty about the nature of business cycles in developing countries, we recognize that there could be a case for using different values of lambda to asses the robustness of the results. Instead, we opt to use alternative detrending techniques (as described below) as a robustness test. In addition, recent research indicates that traditional values for lambda are appropriate for most countries (Marcet and Ravn (2001)).
Where transport from food-surplus to food-deficit regions remains very costly or not at all possible (e.g., Ethiopia), this measure of domestic food availability may not be completely appropriate. That is, aggregate food availability may be sufficient, but significant shares of the population are suffering from food shortages.
Given our interest in assessing whether food aid responds to food needs across (as well as within) countries, country fixed effects are not included.
To the extent that there is substitution between food aid and other aid categories (thus increasing budget pressures during famine, for example), countercyclical food aid may still be inadequate to smoothen consumption. This issue is beyond the scope of the paper.
Country-level results (not reported) are available on request from the authors.
Barrett and Heisey (2002) estimate that multilateral food aid covers only little more than two kilograms out of every one metric ton shortfall in food availability. Lavy’s (1992) estimates imply that food aid covers about 5 kilograms of a contemporaneous metric ton shortfall. He suggests that over a period of three years, cumulative food aid covers about 45 percent of the shortfall, three years after the negative shock. While it is encouraging that food aid eventually covers a substantial amount of a consumption shortfall, there are significant humanitarian costs associated with the delay in disbursement.
However, nonmonetized food aid is also critical for alleviating spending pressures on the budget. In this respect, aggregate food aid (rather than just the volume sold in local markets) may be a more accurate measure. See footnote 7.
It can be argued that fiscal balances are jointly determined with food aid flows, as recipient governments incur new expenses associated with food aid agreements. However, given the very small share of food needs covered by contemporaneous food aid, this is not likely to have an impact on the empirical results.