Agricultural Knowledge, Science and Technology: Investment and Economic Returns | 531 International donors
Broadly, international donors are motivated by three objec­tives for extending funding for ASKT to developing coun­tries. These are:
•   International charity or resource transfer based on al­truistic considerations;
•   Correction of international market failure or the provi­sion of international public goods; and/or
•   Expansion of the markets of the donor countries.
These objectives have motivated international donors to support agricultural research and extension capacity to en­hance food production in many developing countries during the last 50 or more years.
        Although international funding for AKST is a major source of support in the developing or poorer countries and domestic research would not have developed without this crucial support, international funding can also create dis­tortions. The availability of international funding at times may encourage domestic players from mobilizing internal resources. This is most visible in Africa where donor sup­port to agricultural research has increased in relation to domestic support so that nearly half of the agricultural in­vestment in Africa is from donors including development banks (see 8.1.4). This has perpetuated donor dependence and undermined efforts to develop domestic political sup­port for sustainable funding, especially for the smallholder sector (Rukuni et al., 1998; Eicher, 2001). The allocations of international funds between different types of expendi­tures, such as between capital and recurring costs, do not need to adequately reflect the domestic opportunity cost of the resources. There have been instances where external aid has compounded the inefficiencies in AKST investment decisions in developing countries. The risk of bad invest­ment goes up when grants are easily available (Tollini, 1998).
          Correcting market failures at the international level could be another force driving international donors to fund AKST systems or generation. There are at least two major forms of market failures. There can be international nega­tive externalities, which need action at the international level, but there may also be instances where it is efficient for the international community to take action to address cer­tain problems within the developing countries that have the potential for global impact. The recent incidence of avian flu is a good example. Even if the interest in the industrial­ized world is to protect itself, financing some activities in developing world on preventative measures at the source of the problem would be a more effective and efficient strategy rather than spending money only on protective activities within the industrialized world. Similar arguments apply for international public goods. Certain technologies or tech­nology generation systems themselves can be seen as inter­national public goods. The ideal strategy would be for the industrialized and developing world to pool their resources together, but there are problems of coordinating such ef­forts. The severity of lacking such public goods perceived in the industrialized world would encourage them to take pro­active steps, whereas developing countries who face other more pressing problems would give low priority. How far AKST investments driven by the requirements of correcting


international market failure reflect the economic variables of the world as a whole, would determine their effectiveness, efficiency and outcomes. Moreover, it is important to see that such investments made in the developing world do not create distortions in their economies.
        The expansion of markets or cost-reduction of global production has also driven industrialized countries, mul­tinational firms and multilateral agencies to make AKST investments in developing countries. These, however, raise a number of issues: (1) Trade and nontrade barriers (and associated transaction costs) might influence where such in­vestments take place and at what cost; (2) Since the domes­tic institutions in many developing countries are weak, this may lead to an intensification of "market failure" problems in such countries. For example, there are apprehensions on increasing field research of new (genetically modified) seed varieties in developing countries as part of international con­tract research, without taking adequate safeguards against the unknown long-term impacts of such seed varieties and also for the preservation of local genetic materials.
          The urge to expand the lending of multilateral funding agencies has also received criticism during the last decade. The incentives of the personnel in these agencies could be directed towards excessive lending, and this, combined with the incentive of political and administrative decision mak­ers of developing countries to borrow excessively (more than what is warranted by the domestic economy consider­ations), can lead to excessive loans. Whether this incentive problem has affected the efficiency of multilateral funding for AKST in developing countries is an issue that needs to be analyzed. Competitive funding
Block grants have been used for allocating research re­sources for many years. Now block grants have become less attractive as concerns have been raised about inefficiency in resource allocation, effectiveness and relevance of research as well as exclusion of other stakeholders in the research pro­cess, from priority setting to execution of research projects/ programs  (McMahon,  1992; Echeverria,   1998; Reisfsch-neider et al., 1998; Von Oppen et al., 2000). This has led to the gradual evolution of competitive funding mechanisms at the international and national levels. Competitive grants:
•   Allow for a wider network of actors to participate in the research process broadening the scientific talent available (Von Oppen et al., 2000);
•   Allow for a possibility to seek a diversity of funding sources (Byerlee, 1998);
•   Improve research quality (Byerlee and Alex, 1998);
•   Improve allocation of research resources (Alston et al., 1995).

However, competitive funds have the disadvantage of hav­ing high transaction costs (Echeverría, 1998). Competitive grants take scientists' time (funded through core funding) for preparation of research proposals, and evaluation (Huff­man and Johnson, 2001). There is also significant increase in administrative costs for managing research competition. Another disadvantage of competitive grants is that they do not contribute to capacity development in terms of infra­structure and human capital development. They also tend to