Financing Support Works? Efficiency Analysis of Aid to Education in ODA

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Abstract

Purpose/ Research Question: Despite the rapid growth of Official Development Assistance (ODA) financing support for developing countries, little research has been done to study the effectiveness of ODA financing support for each developing country. It is assumed that aid to education by ODA has positive effects on the economic growth and social well-being of developing countries. This study aims to explore the determinants of economic growth and the living standard levels in 88 countries, with a particular focus on the impacts of ODA education aid.

Key Literature Reviews: While a number of case studies have been conducted to study the determinants of economic growth and living standard levels in specific recipient countries, not many large-N studies with panel data have been done to examine how ODA aid programs affect developing countries. Given that the increasing number of ODA education programs have been developed to motivate dynamics of open innovation and lead adoption of innovation policies in developing countries, it is timely and important to examine whether ODA education-specific aid is more positive effect on enhancing the economic growth and social well-being of developing countries than other ODA sub-aid programs. Our research aims to fill this gap.

Design/ Methodology/ Approach: In order to explore the research question – how much do ODA education programs contribute to increasing the economic growth and living standards of developing countries?, this research used the following two indexes - (1) the annual ODA grants to Korea, with aid type as the key independent variable; and (2) the human development index (HDI) - to measure dependent variables from 2006 to 2019, across the 88 recipient countries. Special attention has been paid to understand which factor – e.g., the effects of aid to education program individually, the whole amount of ODA assistance, or other control variables - is more significant on HDI. In this study, the pooled OLS model, the fixed effects (FE) model, and a random effects (RE) model will be developed and analyzed to discuss the research question. It will compare the pooled OLS with the FE model through the F test, and the significance of the time probability effect is tested through the Breusch–Pagan LM test. Finally, the Hausman test will be used to compare the stationary effect and the RE.

Findings/Results: As it is expected that the economic and social impacts of ODA are significant, our preliminary results demonstrate that specific subprograms are more likely to directly affect HDI. The effect of ODA aid to education is statistically significant, but it is negative. This research will provide practical implications regarding enhancing the effectiveness of using ODA education aid.

Research limitations/ Implications: Future research needs to analyze the open and social innovation ideas and potential effective roles of various stakeholders in communities and markets in developing countries. An open innovation approach can provide smart and sustainable solutions to improving the effectiveness of aid to education ODA programs. The outcome function of ODA programs depends not only on their financial resources and managerial factors but also on market forces, state bureaucracies, the effective collaborations among nations, and social business innovations. There are state roles, market elements, and social forces that facilitate the emergence of social innovations through formal and informal interactions among various stakeholders involved in the implementation of ODA programs.

Authors

• Eunmi Lee, Kookmin University

• Myungjung Kwon, California State University, Fullerton