Tyler Cowen says that the debate about the effectiveness of foreign aid has improved in the last ten years. If so, then things must have been really bad a decade ago: it continues to astound me how many people are allowed to get away with peddling their prejudices without any meaningful evidence.
James Surowiecki has an interesting piece in the New Yorker which seems to support the case for aid:
Between 1946 and 1978, in fact, South Korea received nearly as much U.S. aid as the whole of Africa. Meanwhile, the billions that Taiwan got allowed it to fund a vast land-reform program and to eradicate malaria. And the U.S. gave the Asian Tigers more than money; it provided technical assistance and some military defense, and it offered preferential access to American markets. Coincidence? Perhaps. But the two Middle Eastern countries that have shown relatively steady and substantial economic growth—Israel and Turkey—have also received tens of billions of dollars in U.S. aid.
But this anecdotal analysis is no more valid than the opposite argument which was put by Bill Easterly in the New York Times on July 3rd:
From 1960 to 2003, we spent $568 billion (in today’s dollars) to end poverty in Africa. Yet these efforts still did not lift Africa from misery and stagnation.
Saying that we have given aid to Africa and yet Africans stayed poor is not an argument against aid; just as saying that we gave aid to Korea and they got rich is not an argument in favour of it.
As I argued here on June 30th, the question is whether aid makes a difference – and that requires some evidence about what would have happened in the absence of aid. You need to do a proper statistical analysis, controlling for other variables, to establish what difference, if any, aid makes to a country’s growth.
Plenty of studies have been done, and they nearly all find that aid is strongly, positively correlated with sustained economic growth in the medium term. My colleagues at the Center for Global Development did a study which looked at the relationship between aid and growth which finds:
higher-than-average short-impact aid to sub-Saharan Africa raised per capita growth rates there by about half a percentage point over the growth that would have been achieved by average aid flows. The results are highly statistically significant and stand up to a demanding array of tests …
And in a comprehensive survey of all the empirical research on thiark McGillivray at the OECD (pdf file here) finds that poverty would have been much higher in the absence of aid.
I’ve done a series of blog postings on aid effectiveness which set out the compelling micro and macro evidence for the effectiveness of aid. Jim at Our Word is Our Weapon is also a reliable source of evidence-based analysis.