LOCAL COMMUNITIES

Local communities can become more economically self-sufficient, reducing their dependence on aid

ECONOMIC MULTIPLIER EFFECTS CAN DOUBLE THE MONEY’S IMPACT ▾

THE EXTRA ECONOMIC ACTIVITY CAN HELP CREATE JOBS AND CONSUMPTION FOR THE ENTIRE COMMUNITY ▾

THE ADDITIONAL MONEY IS OFTEN INVESTED IN PRODUCTIVE ASSETS ▾

THERE ARE NO LASTING INFLATIONARY IMPACTS ON THE ECONOMY ▾

  • Most studies have found little or no inflationary effects from financial assistance programmes, and no lasting impacts. This is because the number of people receiving the money, and the amount of funds dispersed, are usually small relative to the wider economy. Markets are also normally very responsive to changes in demand.
  • An IRC evaluation of the 2013-2014 winter cash assistance programme for Syrian refugees in Lebanon is an interesting example as it was able to compare price effects in the mountains, where the aid was provided, and those in lower, less cold areas where people did not receive the aid. The evaluation found no meaningful trend to higher prices.
  • Even when large numbers of people and large amounts of money are involved, there has been no evidence of inflation. Examples include: unconditional cash grants to over 1.5 million people in Somalia during the 2011 famine; $400 million provided to Pakistan in 2010 in the wake of devastating floods; and $6 billion of financial assistance provided to victims of Hurricanes Katrina and Rita in the USA. In all cases, there was no inflation.
  • In fact, cash has sometimes been found to lower prices by reducing traders’ credit risks and operating costs, as Oxfam discovered when it assessed its financial assistance programme in Sudan.
  • Food aid can temporarily depress prices but with potentially long-term negative consequences. If food is imported in bulk, prices can fall but this can have a negative impact on local production and trade of the food, reducing the local supply, which can increase prices after the food aid finishes.
x2

Every dollar spent on financial aid can generate an additional two dollars of economic activity in local markets.

24%

About a quarter of Mexico’s PROGRESA conditional financial aid scheme was invested by recipients in land and livestock, improving their self-sufficiency.

“There is convincing evidence from a number of countries that (financial aid) contribute directly or indirectly to a wider range of development outcomes”

–DFID

TED talk on the value of giving money directly