Chapter 5 | Page 213 influences resource allocation decisions.119 The politics of resource allocation is complex, with multiple actors and diverse objectives. Allocation decisions are often influenced by contextual needs and priorities (time, place and nature of the aid) as well as the political equilibrium of the recipient State. Failure to harmonise aid flow with the macroeconomic policies of recipient States often leads to the phenomenon known as Dutch disease,120 in which ‘windfall’ resources (in this case, development aid) reduce the drive for domestic productivity and create dependency on aid.121 However, evidence of the effect of aid receipt on the real exchange rate and overall economic performance remains mixed.122 The impact of international assistance on the overall progress of welfare and quality of life in the recipient State is extremely relevant from an ESC rights perspective. Drawing on Human Development Index (HDI) data for 104 countries over 20 years, Gomanee et al show that aid contributes to improved welfare indicators, through both growth and expenditure, particularly in low income countries.123 They argue that aid can impact welfare in a number of ways through growth or increased public sector spending.124 Social spending related to increased aid funds is likely to have a positive impact on the poor, mainly because they are more likely to be positively affected by increased 119 Svensson, above n 111, 439. 120 Dutch disease refers to a situation in which revenue from natural resources – or aid flow – strengthens the local currency, thereby reducing the competitiveness of other industries leading to reduced exports and eventual weakening of other industries. The Economist coined the term “Dutch disease’ in 1977 in relation to the impact of the discovery of large reserves of gas in Netherlands. Since then, the term has also been applied in other situations of high windfall, such as aid flow, which could have similar impacts on the national productivity and local currency. See for example, The Economist, What Dutch disease is, and why it's bad The Economist <http://www.economist.com/blogs/economistexplains/2014/11/economist-explains-2>. 121 See for example, David Fielding and Fred Gibson, 'Aid and Dutch Disease in SubSaharan Africa' (2012) Journal of African Economies. 122 See for example, Berg et al, above n 102, 77. 123 Karuna Gomanee et al, 'Aid, Government Expenditure, and Aggregate Welfare' (2005) 33(3) World Development 355–370. 124 Ibid., 364.