Modern Economy, 2011, 2, 84-89
doi:10.4236/me.2011.22013 Published Online May 2011 (
Copyright © 2011 SciRes. ME
The Fourth UNLDC Conf erence (UNL DC-IV) in Istanbul:
Exploring Ideas for Augmenting For eign Aid Flows
Hasanuzzaman Zaman, Afrin Islam
Centre for Policy Dialogue (CPD), Dhaka, Bangladesh
E-mail: zaman.h,
Received December 2, 2010; revised February 24, 2011; accept e d M ar ch 26, 2011
Since 1981, the United Nations (UN) has been holding special conferences on the least developed countries
(LDCs). The Fourth UN Conference on LDCs (UNLDC-IV) is scheduled to take place in Istanbul from 30
May to 3 June, 2011. The overarching objective of this paper is to raise awareness in view of the upcoming
UNLDC-IV by suggesting ideas for augmenting foreign aid flows to the least developed regions in the world.
It emphasises on preparing aid management policies (AMP) in order to improve aid flows both in quantita-
tive and qualitative terms. The paper argues that increase of foreign aid is necessary if LDCs are to remain
competitive and continue using international trade as a tool for promoting economic growth and socioeco-
nomic development.
Keywords: Macroeconomy, Overseas Development Assistance (ODA), Aid for Trade (AfT), Least
Developed Countries (LDCs), UNLDC-IV, Aid Management Policy (AM P)
1. Intr oduction
In 1971, the United Nations (UN) defined the category of
least developed countries (LDCs) by classifying 24 na-
tions as the world’s poorest countries in terms of their
economic performance and socioeconomic status (Annex
1 present a list of acronyms used in this paper). Today
(2011), there are 49 LDCs and these account for less than
2 per cent of worlds gross domestic product (GDP) and
contribute about 1 per cent of global trade in goods and
0.5 per cent in services [1]. In nearly four decades since
the UN’s definition of LDCs, only two countries have
graduated from the least developed status, Botswana in
1994 and Cape Verde in 2007. This slow progress is
clearly an indication of both home-grown factors such as
unrestrained population growth, rampant government
corruption and economic policy mismanagement, and
also external factors, in particular the international de-
velopment community’s performance in providing over-
seas development assistance (ODA) to prevent deteriora-
tion of socioeconomic conditions in these countries.
Recognising the special development needs of the
LDCs, the UN has been holding special conferences on
LDCs since 1981. Three such conferences had been held
(the first two in Paris in 1981 and 1991, and the last one
in Brussels in 2001) where Programmes of Actions were
adopted to undertake various measures by the global
community to help LDCs devise strategies to cope with
the challenges that they face. The Brussels Declaration
and the Programme of Action (BPoA) for the LDCs in
view of the decade 2001-2010, put forward the frame-
work for developmental partnership, identified goals and
targets to be achieved. One of the alarming findings of
the BPoA’s annual review was that total net disbursed
ODA flows to LD Cs remaine d w ell b elow the committed
levels during th e course of the las t decade [2 ]. In view of
the upcoming Fourth UN Conference on LDCs (hereafter
UNLDC-IV), set to take place in Istanbul, Turkey in
May 2011, the issue of developing a comprehensive in-
ternational support mechanism has gained renewed at-
tention in the backdrop of the g lobal economic reces sion
of 2009 which was brought about by the global financial
crisis in 2008. It is to be noted here that as part of its a c-
tivism to advocate and advance the interests and con-
cerns of LDCs, the Centre for Policy Dialogue (CPD), a
civil society think tank in Dhaka, Bangladesh, in associa-
tion with the Organisation for Economic Cooperation
and Development (OECD) Development Centre, Paris,
organised a two-day International Dialogue titled “Ex-
ploring a New Global Partnership for the LDCs in the
Context of UNL DC-IV” in Dhaka, Bangladesh, on 24-26
November, 2010.
Copyright © 2011 SciRes. ME
This article focuses on internationa l assistan ce because
the UNLDC-IV presents a key opportunity to arrest the
declining trend of foreign aid flows. Relevant literature,
dealing with trade and developmental related needs, and
where ODA could be targeted was also studied from the
LDCs’ perspectives. Statistical p ublications of concern ed
organisations and trade-related databases served as major
sources of both data and information for the overall pa-
The overarching objective of this paper is to help im-
prove mutual accountability between development part-
ners and recipient countries, and target aid for addressing
real developmental needs which is restraining growth in
the LDCs. However, a country cannot be developed sim-
ply by international action because the destiny of each
LDC rests primarily in the hands of its own government.
Global programmes of actions are, therefore, at best,
supporting and complementary. It is to be recalled here
that the Paris Declaration, adopted by the international
development community and the members of the UN in
2005, incorporated the notion of country (recipient)
ownership in terms of the foreign assistance agenda.
Layout of the Paper: The paper is divided into four
sections. The following section provides a brief literature
review relevant to the topic, given the already large
volume of work that has been done on the foreign aid
discipline. Section 2 sets the tone of the paper and argues
that ODA remains a key ingredient for promoting eco-
nomic growth in the LDCs. Section 3 reports on the pre-
vailing macroeconomic and external scenario of Bangla-
desh. Section 4 suggests some ideas for augmenting for-
eign aid flows which could be considered by the repre-
sentatives of LDCs and also development partners at the
upcoming UNLDC-IV in Istanbul this year. Section 5
2. Exploring the Aid-Growth Nexus
The last few years have witnessed publication of a large
number of studies on aid effectiveness and the methods
employed to study the subject has ranged from detailed
case studies at the project level, to regression analyses of
the growth impact of aid, in samples of almost hundred
countries. Hansen and Tarp (2000) compared growth
studies where the relationship between aid and growth
was modelled as non-linear [3]. On the other hand,
Burnside and Dollar (2000) found evidence of some ef-
fects by the introduction of an aid policy in the growth
regressions [4]. In their model, aid contributes positively
to growth, but only in healthy policy environments.
Logren et al. (2009) also estimated that with an increase
in grant aid in Rwanda, there was significant positive
impact on the attainment of the MDGs, which increased
both the overall living standards and the longterm pros-
pects of economic growth [5]. According to their simula-
tion result, higher aid flows can lead to rise in economic
growth by up to 0.6 percentage points, and a fall of 3
percentage points in poverty rate by 2020 (Ibid, p.16).
Boone (1996) illustrated that aid had no impact on in-
vestment or growth in standard neo-classical growth
models [6]. However, this has been questioned by many
scholars. Obstfeld (1999) demonstrated that an increase
in aid raises consumption and investment and also the
growth rate, provided the economy is initially below the
steady state [7]. Burnside et al. (1997) noted that in a
neoclassical growth model, the impact of aid on growth
will be greater when there are fewer policy distortions
affecting the incentives of agents [8]. Markandya et al.
(2010), nevertheless, suggests that on average aid is not
positively correlated with real economic growth in the
long run [9]. Paul (2010) examined aid allocation by
donor over time by dividing allocations into four com-
peting factors of the 4P (Poverty, Population, Policy and
Proximity) framework and observed that in case of aid
allocation under this approach, there was not any notable
change in poverty or policy sensitivity; but it resulted in
substantial and entrenched donor heterogeneity [10].
Results found that Sweden, the Netherlands and the UK
are considerably more poverty sensitive than other do-
nors (Ibi d , p.25).
Gachassin et al. (2010) affirms that investment in
tarred roads in Africa did not have a high impact on pov-
erty [11]. However, in Bangladesh, Khandker, Bakht,
and Koolwal (2006) estimated that certain road im-
provement projects led to a 27 percent increase in agri-
cultural wages and an 11 percent increase in per capita
consumption [12]. To sum up, though there is debate
surrounding the impact of aid in promoting growth, for-
eign assistance remains vital as a source of external fi-
nancial stimulus to address real developmental needs,
such as financing the building of physical infrastructure
in the LDCs.
3. Analysing Bangladesh Macroeconomy
The economy of Bangladesh, in spite of the barriers to
movement of factors of production, has been integrating
rapidly with the global economy as a result of increased
trade liberalisation. Table 1 below provides some indi-
cators which captures this trend. Trade integration of the
Bangladesh economy with the global market has resulted
due to various economic and trade policy reforms executed
in the mid-1980s and in the 1990s. The trade integration
of Bangladesh’s economy with the global market regis-
tered a remarkable rise from 13.5 per cent in 1981 to
Copyright © 2011 SciRes. ME
Table 1. Bangladesh Macroeconomy Scenario 1981-2010 (in
Million USD).
Indicators of
Trade Integration FY 1981 FY1991 FY 2001 FY2010
1. Export (X) 725.0 1718.0 6467.0 16204.7
2. Import (M) 1954.0 3472.0 9335.0 23738.4
3. Remittance (R) 379.0 764.0 1882.0 10987.4
4. ODA Disbursed 1146.0 1733.0 1369.0 2080.0
5. FDI (net) 0.0 24.0 550.0 636.0
Total (1-5) 4204.0 7710.5 19603.4 53646.5
(Current Price) 19811.6 30974.8 47306.0 99434.3
Source: CPD Trade Database (compiled from the Bangladesh Bank and
Export Promotion Bureau).
40.2 per cent in 2010. The share of ODA in relation to
the GDP, during the nea rly three-decade period, declined
from 5.8 per cent to 2.1 per cent. It is encouraging that
today the value of foreign aid received by the country
accounts for 12.8 per cent of the total exports earnings by
Similarly, the ratio of ODA to total export and remit-
tance increased from 1:1.4 in 1991 to 1:13 in 2010. In
other words, for every US$ 1 received in the form of
ODA, there can be an additional generation of external
earnings worth US$ 13. Total export stood at US$ 16.2
billion and imports US$ 23.2 billion in 2010, compared
to US$ 1.7 billion and US$ 3.5 billion respectively in
1991. It is of little sur prise that ODA flows were 3 times
more than remittance in the 1980s and 1990s, but today,
this trend has reversed and remittance flow is about 5
times more than incoming ODA. The external sector,
including export of human resources, has played an im-
portant role toward the improvement of the macroecon-
omy performance by Bangladesh. ODA, nevertheless,
finances about 12 per cent of social programmes in
Bangladesh [13]. Aid finances about one-third of the
fiscal deficit of Bangladesh and also about half of the
annual development programme (ADP), the key of the
country’s progre ss .
In 2008 and 2009, there was a sharp and very hetero-
geneous slowdown in growth in the LDCs. Today, in the
post-crisis scenario, these low-income countries are at a
critical juncture in which they face a double jeopardy:
they must 1) provide employment opportunities to the
millions of young people who are entering the labour
force each year within an open-economy context; and, 2)
ab intio promote, and subsequently, sustain production
level in the aftermath of the global economic recession
within their available infrastructural setting. It is to be
recalled here that the Aid for Trade (AfT) initiative was
launched following the fifth W TO Min isterial Meeting in
Hong Kong in 2005 to assist LDCs in their endeavour of
building productive capacities to promote and sustain
economic growth. But it is yet to deliver the desired out-
Table 2 presents the declining share of LDCs in ODA
disbursement vis-à-vis developing countries. It is to be
noted here that between 2001-2005, donors provided
US$ 11.2 billion to build economic infrastructure,
US$ 8.9 billion for productive capacities (including
US$ 2.0 billion for trade development) and US$ 0.6 bil-
lion for increasing the understanding and implementation
of trade policy and regulations [14]. Interestingly, the
US’s AfT strategy to support infrastructure has increased
significantly in recent years, almost entirely driven by
spending in Iraq and Afghanistan, making it one of the
highest contributors of AfT flows. These two
war-inflicted countries can be said to have consumed a
considerable share of ODA flows in the last decade
which would otherwise have been channeled towards
other LDCs with longstanding problems.
According to UNCTAD’s LDCs Report 2008, LDCs
as a group witnessed average GDP growth rates of 7.7
per cent in 2005 -2006 which was the highest recorded in
the last 30 years [15]. This extraordinary growth was
directly attributed to the liberalised trade regimes of
these countries and many developed countries’ open
market policies (most notably the US, Canada and the
EU). Some LDCs have experienced strong macroecon-
omy structural transformation from being dependent on
foreign aid, to completely relying on trade in order to
support their economic growth. Bangladesh is one such
example whose aid dependency (in terms of GDP) de-
clined from 12.0 per cent in the 1990s, to less than 3.0
Table 2. Performance of development partners.
Commitment (in
million USD) Disbursement (in
Million USD)
2002 2009 2002 2009
Total Aid 66101.65 148437.75 58575.46 120000.11
Countries 46354.88 109443.08 41737.65 95830.33
LDCs 10841.15 30052.59 9598.92 24602.72
Afghanistan and Iraq 1307.61 8138.05 980.62 7488.06
Bangladesh 699.57 1618.81 640.98 897.28
Share of LDCs (%) 16.40 20.25 16.39 20.50
Share of Developing
Countries (%) 70.13 73.73 71.25 79.86
Share of Bangladesh
(%) 1.06 1.09 1.09 0.75
Source: Authors’ calculation from OECD/DAC database.
Copyright © 2011 SciRes. ME
per cent by 2010. The Report recommended preparing
aid management policies (AMP) in order to ensure its
developmental effectiveness (Section 4 elaborates on this
The Global Competitiven ess Rep ort (GCR) 2009-2010,
published annually by the World Economic Forum
(WEF), reported that Bangladesh (and many other LDCs)
seriously lacks a competitive business environment,
which is a prerequisite for any coun try that is aspiring to
accelerate economic development [16]. The GCR re-
vealed that after nearly a decade of domination as the
most hindering factor of doing business in Bangladesh,
corruption declined to the second spot making way for
infrastructure. A CPD AfT needs assessment survey also
ranked infrastructure as the most severe barrier con-
straining smooth operation of business activities in
Bangladesh [17].
4. An Agenda for the UN LDC IV
It is evident now that despite high growth rates in LDCs,
progress towards inducing structural transformation, i.e.,
diversifying their economies so that agriculture, manu-
facturing and services are able to expand alongside a
wider range of higher value added tradable products, has
remained latent. The absence of key factors (mainly for-
eign assistance, both quantitative and technical) required
to kick-off the structural transformation has inhibited
LDCs from embarking on an inclusive and sustainable
growth process, which was the overarching objective of
the Brussels Programme of Action (BPoA) in 2001. Ac-
cordingly, academicians have provided a number of ex-
planations to interpret the stagnant economic status of
the LDCs. These include inadequacy of the traditional
macro-economic framework, a lack of strategic trade and
investment policies, poor efforts in domestic policy and
institutional reforms, low effectiveness of international
support measures and absence of a LDC voice in the
global economic governance.
It can be safely affirmed that the developmental role of
aid has been neglected in favor of overemphasising so-
cial expenditures in the LDCs. Collier (2011) suggests
that there should be shift in donors’ priorities from the
romantic rural-social agenda… to a more practical ur-
ban-economic agenda[18]. But before moving on to the
more qualitative issues of aid, first and foremost, it needs
to be underlined here that all developed countries need to
put in a concerted effort toward meeting their commit-
ment of providing 0.20 per cent of their gross national
income (GNI) as ODA specifically to the LDCs within a
specific timeframe (e.g. 2016). At the same time, it
would be rational to assess the increase in ODA inflows
to LDCs against the rapid building up of international
reserves (from US$ 15 billion in 2000 to US$ 43 billion
in 2006), which has reduced the availability of external
resources. LDC governments should consider initiating a
global investment guarantee scheme, designed on their
terms, so as to reduce risk-premium which they currently
pay for foreign investment (Collier, 2011).
The second recommendation is to prepare an ‘Aid
Management Policy’ (AMP). It is worth noting here that
in Rwanda, the Joint Strategy Cooperation (JSC) docu-
ment and the Donor Performance Assessment Frame-
work (DPAF) has facilitated the monitoring process of
aid flows [19]. The AMP would consist of both the JSC
and DPAF mechanism, dictated under the principles of
Paris Declaration, in order to increase mutual account-
ability and country ownership of national development
strategies. This would help to promote joint government
assessment and induce a strategic shift towards financing
short-term and demand-driven programmes of action
with mutually agreed condition alities. Suffice to mention
that an AMP would be tailored to meet specific needs of
the LDCs in view of their respective diverse market con-
ditions, complementing national development plans
(Five Years Plans, PRSPs, etc). The AMP would take an
integrated approach to balance national planning by
combining different elements of aid in a comprehensive
development programme which would assist in address-
ing impeding concerns deterring economic growth, such
the severe dearth in physical infrastructure.
Thirdly, LDCs should explore possible sources of
non-traditional development partners to connect with
each other and their neighboring countries. The latter
should play an incremental role in providing ODA to
LDCs (e.g. India’s US$ 1 billion to Bangla desh in 2010).
The loan is expected to finance implementation of 14
specific development projects. These would provide both
a quantum and qualitative leap to road, railway and
navigational connectivity between India and Bangladesh
with transit for Bangladesh to Nepal and Bhutan and
vice-versa. The prospect for improving South-South co-
operation should be accelerated to promote financial and
technical cooperation in view of the success attainted by
the Greater Mekong Subregion (GMS) in recent times. In
the 18 years since its inception, the GMS Economic Co-
operation Program has built an impressive record show-
casing the great potential of the AfT agenda. As the re-
gion’s development bank, the Asian Development Bank
(ADB) is the agent for mobilising and channeling AfT
funds to the 8 LDCs located in Asia. Upto 2009, 41 GMS
projects were implemented at an estimated cost of
US$ 11 billion. Of this, ADB has extended loans worth
US$ 3.8 billion and provided co-finance worth US$ 4
billion [20].
Copyright © 2011 SciRes. ME
The GMS north-south corridor, which links China and
Thailand through Laos, illustrates what can be achieved
by harmonising the AfT agenda with national priorities.
In 1997, it took three days for goods to move across the
270 km section of dirt track along the corridor in Laos
and today, that same trip takes only 4 hours with a large
increase in commercial traffic, thanks to a US$ 90 mil-
lion project funded by China, Thailand and ADB (Ku-
roda, 2009). Overall, the GMS initiatives have brought
rapid expansion to corridor projects and the transport and
trade facilitation programme has already created a dom-
ino effect which is being replicated in other subregions
around developing Asia, such as the recent Central Asia
Regional Economic Cooperation (CAREC) initiative.
Country ownership should be conceived as regional
partnerships and therefore, since the Paris Declaration
does not refer to such partnerships, the parties could opt
for emulating the principles of mutual accountability for
developing a transparency framework with regard to aid
flows in the LDCs.
5. Looking Forward
Coping with trade related and other external adjustment
costs, and putting in place the necessary productive ca-
pacity building initiatives have emerged as critically im-
portant factors in enabling LDCs to address the formida-
ble constraints and take advantage of the opportunities
originating from the global integration process. This
makes the issue of augmenting foreign aid flows all the
more necessary. Especially at a time of low demand,
measures to promote and sustain business competitive-
ness could prove to be critical in terms of improving the
required supply-side response. In order to support Bang-
ladesh’s and other LDCs’ strategies of using interna-
tional trade as a tool for development and poverty reduc-
tion, the major constraints that need to be addressed by
foreign assistance as a priority, therefore, are those which
also directly hampers their integration process with re-
gaional and global markets (e.g. physical infrastructure).
As UNLDC-IV is set to take place in Istanbul, Turkey
in May 2011, the issue of addressing the emerging needs
of the LDCs has come to the forefront. Paradoxically,
despite the talk of ‘solidarity’, practical economic coop-
eration is alarmingly weak among LDC governments
than among their counterparts in OECD. To initiate
change, LDCs have to assume the responsibility to work
together for clear and time-bound objectives and suppor-
tive domestic policies may also need to be reprioritised.
The international development community must also
take on the responsibility of meeting their commitments
in terms of ODA disbursement and there is an urgent
need to induce a strategic shift from social agenda to the
more developmental concerns. It is hoped that the
UNLDC-IV will pave the way for strengthening mutual
recognition of socio-economic needs and priorities be-
tween development partners and recipient countries in
order to activate a sustainable aid- growth agenda.
6. References
[1] D. Bhattacharya, “Fourth UN Conference on LDCs: What
to Expect,” Commonwealth Secretariat, 2010.
[2] UNCTAD Secretariat, “In Quest of Structural Progress:
Revisiting the Performance of the Least Developed
Countries,” United Nations Conference on trade and De-
velopment (UN CTAD), Geneva, 2010.
[3] H. Hansen and F. Tarp, “Aid and Growth Regressions,”
Centre for Research in Economic Development and In-
ternational Trade (CREDIT) Research Paper No. 00/7,
University of Nottingham, Nottingham, May 2000.
[4] A. C. Burnside and D. Dollar, “Aid, Policies and
Growth,” American Economic Review, Vol. 90, No. 4,
September 2000, pp. 847-868. doi:10.1257/aer.90.4.847
[5] H. Logren, H. Nielsen and K. Ezemenari, “Scaling up
Aid or Scaling Down,” Policy Research Working Series,
WSP 4958, World Bank, Washington D.C., 2006.
[6] P. Boone, “Politics and the Effectiveness of Foreign
Aid,European Economic Review, Vol. 40, No. 2, Feb-
ruary 1996, pp. 289-329.
[7] M. Obstfeld, “Foreign Resource Inflows, Saving, and
Growth,” In: K. Schmidt-Hebbel and L. Serv´en, Eds.,
The Economics of Saving and Growth, Cambridge Uni-
versity Press, Cambridge, 1999, pp. 107-146.
[8] A. C. Burnside and D. Dollar, “Aid, Policies and
Growth,” American Economic Review, Vol. 90, No. 4,
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[9] A. Markandya, V. Ponczek and S. Yi, “What Are the
Links between Aid Volatility and Growth ,” Policy Re-
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[10] C. Paul, “25 Years of Aid Allocation Practice: Compar-
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09/11, Centre for Research in Economic Development
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[11] M. Gachassin, B. Najman and G. Raballand, “The Impact
of Road on Poverty,” Policy Research Working Series,
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[12] S. R. Khandker, Z. Bakht and G. B. Koolwal, “The Po-
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and Development (OECD) and World Trade Organiza-
Copyright © 2011 SciRes. ME
tion (WTO), Geneva, 2007.
[15] UNCTAD, “The Least Developed Countries Report 2008:
Growth, Poverty and the Terms of Development Partner-
ship,” New York and Geneva, 2008.
[16] World Economic Forum, “Global Competitiveness Re-
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[17] CPD, “Aid for Trade: Needs Assessment from Bangla-
desh Perspective,” Centre for Policy Dialogue (CPD),
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[18] P. Collier, “Helping LDCs Catch Up,” Commonwealth
Secretariat, 2011, p. 3.
[19] O. Obale, “ODA for Productive Capacity Development,”
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Development, Dhaka, 24-26 November 2010.
[20] H. Kuroda, “Aid for Trade in Asia and the Pacific,” Con-
federation of Asia-Pacific Chambers of Commerce and
Industry, No. 2, 2009.
Annex 1: List of Acronyms
4P Poverty, Population, Policy and Proximity
ADB Asian Devel o pment Ba nk
AfT Aid for Trade
AMP Aid Management Policy
BPOA Brussels Programme of Action
CAREC Central Asia Regional Economic Coopera-
CPD Centre for Policy Dialogue
DPAF Donor Performance Assessment Framework
GCR Global Competitiveness Report
GDP Gross Domestic Product
GMS Greater Mekong Sub region
GNI Gross Nat i onal Inc ome
JSC Joint Strategy Cooperation
LDC L east D eveloped Country
ODA Overseas Development Assistance
OECD Organization for Economic Cooperation
and Development
PRSP Poverty Reduction Strategy Paper
UN United Nations
UNCTAD United Nations Conference on Trade and
UNLDC-IV Fourth UN Conference on LDCs
WEF World Economic Forum