In my view: The Structural Gap approach offers a new model for co-operation with middle-income countries

ECLACToday’s post from Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the Development Co-operation Report 2014: Mobilising resources for sustainable development.

Middle-income countries differ widely in their reliance on official development assistance (ODA). While for some, ODA represents less than 1% of their gross national income, for others it is more than 30%. This divergence reflects countries’ differing capacity to access financial resources and capital markets.

The DAC List of ODA Recipients shows all countries and territories eligible to receive official development assistance. The list includes low and middle-income countries, as well as the least developed countries, defined according to their gross national income (GNI) per capita. As we review the future of ODA, we need to ask: Is per capita income the best criterion for allocating official development assistance? And how can we deal with the heterogeneity of middle-income countries?

The use of income per capita as an allocation criterion relies on two assumptions: that as countries increase their income per capita they will be able to mobilise a larger pool of international and domestic resources to finance their development needs and become less dependent on ODA; and that income levels reflect a given stage of social and economic development.

Evidence shows that a country’s capacity to access external resources depends on many factors besides income per capita. These include conditions outside their control, such as country risk ratings and perceptions, external demand for the products from that country and country size (i.e. population). Similarly, domestic resource mobilisation depends on numerous factors, including levels of savings, development and strength of financial markets, and the capacity and willingness of the government to levy taxes and collect duties (Chapter 7 and 14). Evidence also shows that despite similar income levels, countries may have different development realities. For example, people may vary widely in their access to social protection mechanisms, formal financial institutions and quality education, as well as in their resilience to economic and social shocks.

Far from being a homogeneous category, middle-income countries are a widely heterogeneous social and economic grouping with a large diversity of needs. For example, in 2012 income per capita in these countries ranged from $1006 to $12,275.

As a way forward, ECLAC proposes the Structural Gap approach as an alternative criterion to that of per capita income. This approach is based on the premise that there is no single classification criterion applicable to all countries and underscores the fact that income level cannot be equated with development level. It identifies key areas where there are obstacles to sustained, equitable and inclusive growth in middle-income countries (or “gaps”): equality and livelihoods, investment and savings, productivity and innovation, infrastructure, education, health, taxation, gender and the environment. Countries themselves are responsible for identifying the main gaps that hamper their social and economic development.

In my view, the debate on the future of ODA can benefit from the Structural Gap approach, which offers a basis for inclusive and egalitarian co-operation. It should be part of the post-2015 framework, helping to reorient co-operation away from the “donor-recipient” dichotomy towards a new model of co-operation among equals, following the principle of common-but-differentiated responsibilities.

Useful links

OECD work on external financing for development

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  1. Estimada Alicia,

    Good and timely article nearly 12 months away from another 15 years of changing priorities in Official Aid. Donor countries have already begun to change the rules of engagement with MICs. Interestingly enough, ECLAC and the majority of universities in the region have somewhat ignored this changing landscape of aid delivery or opportunities. Universities still teach the old model of aid delivery and ECLAC still wants MICs to remain eligible for “aid”. How would a donor country make the case for Colombia to receive more aid when Colombia itself wants to join the private DAC Club!?

    Is your intervention late in the process? Wouldn’t it be more progressive for CEPAL to also engage the region in a new era of development that focuses on capacity building, transparency, and collective actions for development? I have had the opportunity to travel ALL of Latin America and had the opportunity to go to places that you probably do not know that they exist…other than reading that they are the most dangerous places on Earth. I have had the opportunity to meet with several of the officials responsible for cooperation and none are working on the development of tools and infrastructures that would make Official Aid and Private Aid function in a way that it would reduce (if not eliminate) fragmentation, duplication….and increase effectiveness.

    It’s interesting when local organizations are made aware of new financing models that are more sustainable in the long run — they want to learn more and get away from this ODA model that does little to change the mentality towards development.

    Latin America is one of the continent that has all of the right factors to succeed and innovate. The problem is not opportunities…the problem is the ongoing discourse to remain a group of country that wants to depend on traditional aid. CEPAL should take the lead and work with us to put forward a new model (as part of the post-2015 agenda) that would engage all stakeholders in a meaningful new era for hyper-collective actions.

    The argument to change the way countries are categorized as MIC sure does need some changes. It reminds me of the 20 year discussion that it took to go from a simple definition of poverty “Human Development Index” to a “Multidimensional Poverty Index.”

    I would even argue that within one country such as Colombia…the rates of development are quite diverse. One part of the country is in the 21st century and the major part of it in a mix of 19th century and 18th century. So maybe part of Colombia should qualify as a High Income Countries and the rest has Least Developed!?

    Once again…hopefully CEPAL can also engage country leaders and all universities to teach about the new models of development…and that the region should put in place the information and financial infrastructures that would attract investment (not only FDI) but investment models that could leverage existing flows and make them more effective, efficient, and fair.

    Saludos cordiales…Luc Lapointe
    Cali Colombia
    “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”