"We are a strong OECD country, yet we are fast becoming the least generous when it comes to reducing global poverty," said UNICEF Australia chief executive Norman Gillespie.

"Mr Hockey may well wish to argue the economy will grow faster under a Coalition but his costings are at the expense of children's lives."

World Vision Australia chief executive Tim Costello called the aid cuts an "isolationist policy" and added: "We understand our country faces economic challenges but we should never, ever balance the books on the backs of the poor."

Greens leader Christine Milne also lashed out at the decision. "Spending on infrastructure at the expense of the world's poorest people is shocking," she said.

Care Australia spokesman Andrew Buchanan said: "In light of Australia taking over the presidency of the UN Security Council, it really undermines Australia's reputation on the world stage."

Their condemnation is not surprising. Up to September this year, Australian foreign aid was expected to increase to about $5.153 billion, to represent about 0.35 per cent of gross national income. The longer-term aim then was to lift this to 0.5 per cent of gross national income by 2016-17, and to 0.7 per cent in another year or so to make good on our global commitment for the United Nations Millennium Development Goals, late as that may be. The Go8 target was 0.7 of gross national income by 2015.

That has all changed now. The Abbott government is reducing its aid spending by about 11 per cent this financial year, and then by greater sums across the following three years, as it seeks to save $4.5 billion.

Less money will be spent on assisting displaced refugees in the Syrian crisis; less for educating children in Indonesia, the Philippines, Thailand and Vietnam; less for providing sufficient food and safe drinking water in China, Cambodia, Myanmar, and India. Less aid money could mean increased health risks for birthing mothers in Papua New Guinea, Fiji and the Solomon Islands; and higher mortality and morbidity rates for children in the Asia-Pacific region.

Australian aid recipients in Africa, the Middle East and in small parts of Latin America and the Caribbean will slide into greater disadvantage. Funding for infrastructure building and improvement – by far the largest single element of Australia's aid overseas – will be heavily reduced, which will constrain the development of new production and trade opportunities.

Good intentions

For all its good intentions, and some evidence of gains, a big and increasing foreign aid budget is becoming harder to defend. The developed world has evolved from abundance to austerity, fiscal cliffs, deficits, and struggles to ensure financial solvency. Money is simply tighter now and the public is much less keen on aid spending than their heads of government might be.

Also, in theory, foreign aid is expected to produce economic growth in the recipient country, but this has failed to materialise in practice. In countries where there is an educated population base and adequate infrastructure, foreign aid is expected to increase incomes. Increased incomes lead to increased aggregate demand, which in turn leads to an increase in investment. Total national output then increases, and gross domestic income or national income grows.

In theory, aid is also supposed to give recipients greater ability to import capital goods or technologies; and it can also be instrumental in the building of capital projects such as roads, bridges, electricity systems, schools and hospitals, which may otherwise be impossible to construct.

Aid also facilitates communications, builds confidence and increases productivity. All of these lead to rises in investment and GDP.

Hooked on aid

In practice, empirical studies have consistently failed to show a clear positive link between aid and economic growth and development.

One reason put forward for this is that aid can create a culture of dependency. The continuous receipt of aid tends to lead recipient countries to become "hooked", and they may start to believe they will not survive without it. Aid can stifle an economy's ability to innovate and find home-grown solutions to problems.

Another reason for the disconnect between foreign aid and growth is that aid lends easily to corruption. Accordingly, much of aid money has ended up in private bank accounts of government officials in corrupt regimes, and little goes to the intended recipients.

Donor countries are also complicit. The US, for instance, requires that food aid it supplies must be bought and shipped from the United States using American-flagged ships. As a result, only 40¢ of each taxpayer dollar spent on international food aid actually buys the commodities hungry people eat; the rest goes to shipping and administrative costs.

Narrow view

That said, the slashing of foreign aid funding is unjustified. It reflects a poor understanding on the part of the government of the role of aid in the global balance, and a narrow view of our role in the world, and in Asia in particular. By cutting foreign aid, we are shooting ourselves in the foot.

Here's why.

We have a moral imperative to help others, and we give aid because we are called by our consciences to assist those in need. I do not buy the argument that Australians have no money to send away. The country is only struggling relative to itself. True, we have had economic challenges in recent years, but we are still an affluent nation that has continued to grow despite the global downturn. It is richly endowed with natural resources that can be harnessed wisely and strategically to further secure the future.

Our politicians' obsession with the budget deficit is lamentable – our budget deficit is the smallest in the OECD and we are, by and large, far from starving.

Furthermore, we give foreign aid not just for the sake of helping others, but also because it is in our best interest as a trading nation to do so. Aid money can be considered an investment in goodwill and trust. Money sent to help mitigate poverty and arrest the spread of disease in Africa, for instance, is expected to do us good in the long term; an Africa that can develop sustainably releases people from poverty and creates opportunities for trade and commerce for ourselves.

In Asia we send aid to help others and to help keep the region peaceful and secure.

Brian Atwood, the former chairman of the OECD Development Assistance Committee, says: "You get more out of a dollar of overseas development assistance than you get out of a dollar of defence spending because you are preventing a crisis in the future if you are investing in that way."

AusAID's effective record

As for aid failing to help nations grow and help alleviate poverty, it's never been claimed that aid alone is a panacea for poverty or economic stagnation. It has always been regarded as part of the solution, along with sound macroeconomic policies, private sector investment, boosting trade and encouraging regional integration.

As for aid dependency and corruption, these are essentially implementation failures. Researchers, policymakers, and practitioners have identified these early on and various approaches have been put in place to help rectify these behavioural effects.

Aid programs now incorporate accountability measures, and detailed exit strategies, so no aid is considered permanent. Recipient countries are increasingly aware that aid dependency is harmful and are taking active part in discussions of how to use aid to achieve self-sufficiency.

As for corruption, it is widely accepted that aid should be spent as effectively as possible, but some wastage is inevitable. This is easily seen in context. AusAID, the recently diminished agency that managed Australia's foreign aid money, estimated that the total losses due to fraud and corruption to be about $3.4 million over seven years, or about $485,000 a year. Compared to the more than $20 billion that AusAID has distributed over that time, the amount is about 0.017 per cent of the total. That's about $1.70 for every $10,000 received.

AusAID compared favourably with many government departments, despite working in some highly corrupt environments. In percentage terms, the amount of fraud losses identified by Centrelink is about 4.5 times greater than that of AusAID, and for Medicare it could be up to 35 times greater.

Compared to other aid agencies, AusAID fared pretty well, too. EuropeAid estimated that the identifiable amount of funding misappropriated within its areas of influence was between 2 per cent and 5 per cent – about 100 to 300 times greater than AusAid's experience.

On the whole, the Australian aid program for the past few years has delivered good value for money. An independent review of the aid program in 2010-11 concluded that Australia had a good aid program and was an effective performer by global standards.

Even so, Australia is working to smarten up its aid efforts, taking into account the provision of knowledge transfer and good management to help build capacity in recipient countries by fostering technology knowhow and boosting private sector investment in infrastructure.

In the Pacific islands Australia sponsors medical staff to work alongside local practitioners to improve the delivery of healthcare. AusAID has also worked with Australian businesses to identify private sector skills that can help drive employment, economic growth and development in aid-recipient countries.

In a recent conference on aid for Africa, it was recognised that Australia's advanced skills in agricultural research, with expertise in areas such as dry-land farming, water and soil management and mining can be of critical use in the region to complement AusAID efforts to build industries and eventually lift more Africans out of poverty.

All of the above are worthy uses of the money the government allocates to help less fortunate countries. The decision to reduce aid spending (or not increase it towards a fair share) weakens the country. It reduces our influence in the world, and especially our region. It robs the country of important economic opportunities.

As the grim news continues to emerge from the Philippines, government and non-government organisations are sending vital supplies to assist. Organisations running special appeals for victims of typhoon Haiyan include:

UNICEF Typhoon Haiyan Children's Emergency Appeal.

Save the Children Relief effort for Typhoon Haiyan.

Australian Red Cross Typhoon Haiyan Appeal.

Oxfam Philippines Typhoon Haiyan.

World Vision Typhoon Haiyan Appeal https://emergencies.worldvision.com.au/index.html#/typhoon-haiyan

Dr Rebecca Valenzuela is from the department of economics, Monash University