Economic impacts of humanitarian aid

Question

What are the economic impacts of humanitarian aid? What is the impact on the local economy? How is economic impact/gain distributed? How does economic impact vary with different modalities of aid? What is the economic impact of humanitarian aid on affected populations, e.g. on their access to credit? Identify key gaps in evidence.

Summary

This review argues that few studies look at all aspects of economic impact of humanitarian aid. Individual studies tend to focus on one or two specific effects (e.g. on food inflation) rather than give an overall perspective of economic impact. The exception is humanitarian aid given in response to the recent Syria crisis, for which a number of studies look at a wide range of economic effects (Bauer et al, 2014; Husain et al, 2014; Lehman and Masterson, 2015). It also highlights a second major issue with evidence on humanitarian transfers; the lack of data comparing economic effects of different aid modalities.

Key findings of the literature review include:

  • There is little evidence of humanitarian assistance leading to inflation: Markets in both Lebanon and Jordan have been able to respond to increased demand for food (generated by distribution of food vouchers to refugees) by increasing supply, and prices have not risen any more than before the refugee crisis (Bauer et al, 2014; Husain et al, 2014; Pongracz, 2015).
  • Humanitarian assistance can have a positive multiplier effect on local economies: The large-scale World Food Programme (WFP) food voucher programme in Lebanon and Jordan has had significant multiplier effects, particularly in the food products sector (Bauer et al, 2014; Husain et al, 2014).
  • Modality of humanitarian aid is a key determinant of multiplier effects: This stems from the very diverse ways in which they engage with and impact markets, but it is difficult to draw definite conclusions about which modality has greater effects. Most of the available evidence looks at the multiplier effects of cash transfers and indicates these can be significant (Bauer et al, 2014; Husain et al, 2015; Bailey and Pongracz, 2015).
  • Economic gains from humanitarian assistance are not evenly distributed among affected populations: The literature indicates that often it is larger traders who benefit most from the positive economic effects of humanitarian aid (Bauer et al, 2014; Zyck et al, 2015; Mosel et al, 2015).
  • Very little evidence is available on the impact of humanitarian aid on labour supply and wages: Cash for work programmes in the wake of Typhoon Haiyan in the Philippines did lead to reduced labour availability (as people preferred the cash-for-work schemes to their own jobs) and higher wages (cash-for-work programmes paid the minimum wage) (Humanitarian Practice Network, 2015), but this is isolated evidence from one case.
  • Provision of in-kind assistance can negatively affect local markets: Distribution of food aid as well as large-scale purchase of bamboo for shelter reconstruction by aid agencies in Sindh, Pakistan, during the 2010 flood disaster had negative impacts on small and medium-sized traders (Zyck et al, 2015).
  • Vouchers can have positive and negative economic effects: The WFP food voucher programme in Lebanon and Jordan led to economic growth (adding 1.3 per cent GDP in the case of Lebanon), but this was largely confined to the food products sector; gains were also skewed in favour of larger stores participating in the scheme (Bauer et al, 2014; Husain et al, 2014).
  • Cash transfers can have significant advantages over other aid modalities: Cash transfers allow beneficiaries to spend money anywhere, meaning that the growth effects are more widely distributed across sectors. The key recommendation of the High Level Panel on Humanitarian Cash Transfers (HLPHCT), which reviewed a wide body of evidence, was that more unconditional cash transfers should be given (HLPHCT, 2015).
  • Ultimately, choice of modality will be context-specific. Market analysis is critical when deciding aid modalities in humanitarian responses: The literature shows that economic impacts of humanitarian aid will depend greatly on the context. Factors such as size of affected population relative to overall population, duration of aid provision and targeting mechanism will all be relevant (Bailey and Pongracz, 2015).
  • There is negligible evidence of the impact of humanitarian aid on affected populations’ creditworthiness and indebtedness: A cash transfer programme in sub-Saharan Africa did lead to traders being more willing to extend credit to beneficiaries, but the latter were unwilling to take on more debt (Barca et al, 2015).

 

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Suggested citation

Idris, I. (2016). Economic impacts of humanitarian aid (GSDRC Helpdesk Research Report 1327). Birmingham, UK: GSDRC, University of Birmingham.