Help or hindrance? Exploring the impact of foreign aid on local skills

This research project explores the relationship between foreign aid and local skills, and asks: considering all effects, does foreign aid help or hinder local skills development, and what does this mean for economic development?

Education-related aid spending has steadily grown over time. Evidence suggests that aid spending on education contributes to expanding enrolment, but more could be done regarding quality of education (Riddell and Niño-Zarazúa, 2016). Riddell and Niño-Zarazúa's (2016) review and other more recent studies highlight the existing focus on enrolment and graduation, but relatively little emphasis on skills. Beyond donor funding to education and training, the presence of a development sector in aid-receiving countries is expected to impact the local skills composition as donors shape national skills policies, and donor organisations and international and local non-government organisations (NGOs) demand local workers who then develop skills to work for these organisations (Harris, 2021; 2023a). For this research, skills are defined as "acquired knowledge, expertise, and interactions needed to perform a specific task, including the mastery of required materials, tools, or technologies" (World Bank, 2021).

Understanding the relationship between aid and skills is critical to international development discourse, and particularly the aid-development nexus. Economists have long contended that skills – the level, composition and quality of skills available – drive economic growth and development. Existing research posits various channels in the aid-growth/development relationship like the real exchange rate, changes in manufacturing output, institutional capacity, and governance. This project is novel in assessing the aid-skills-economic development relationship. If aid positively impacts local skills, the overall effect may be growth/development enhancing. On the other hand, if the impact is negative, this may hinder development and increase the likelihood of continued aid-dependence.

The project aims to explore the aid-skills relationship in four ways.

1. Assessing existing evidence to propose a theory of the different ways in which aid can influence local skills available.

2. Mapping foreign aid targeting skills development in Africa since 1960. This will involve an examination of international development cooperation policies on aid for skills and NGO activities in this area. It will draw on key international agreements on skills (such as those under the MDGs and SDGs), as well as relevant policies by key donor like the World Bank, EU, USAID, FCDO, etc. Data from the Yearbook of International Organizations will be used to map NGO activities.

3. Exploring the relationship between foreign aid and the skills composition in aid-receiving countries using secondary quantitative panel data. Here, regression analysis will be used to identify the relationship between official development assistance and various skills metrics such as functional literacy skills, the share of graduates by discipline and the measured skills gap. Data sources include the World Bank World Development Indicators, the OECD WISE database and UNESCO Institute for Statistics.

4. Understanding the contexts/conditions under which the aid-skills relationship may be stronger/weaker. A comparative case study of Sierra Leone and Liberia will be conducted using document analysis of national policies and interviews with local stakeholders. Both countries have similar aid-receiving histories, but different skills outcomes.

The findings will be positioned within existing literature on skills and economic development. The research contributes to scholarly debates on aid effectiveness and can inform development policy. It is particularly useful and timely given increasing aid funding to skills development and contemporary goals to enhance skills in development countries.