It is currently fashionable to say that poor countries are caught in a poverty trap; and that a big push involving aid and investment would lift them onto a virtuous circle of faster growth and rising prosperity.
It is an attractive argument: it suggests that if we can organise sufficient resource for a large increase in aid, we can shift the poorest countries out of poverty once and for all. This was the original argument for the introduction of foreign aid in the 1950s, and some version of this story has come in and out of fashion periodically in the last fifty years.
There is just one problem: it does not seem to be true. As my colleague William Easterly has shown in a new working paper, we do not see evidence in the growth data for countries being caught in a poverty trap from which some escape:
- the countries that start off poor do not appear to have significantly lower growth rates subsequently, and growth rates in poor countries are not close to zero
- there are few examples of a country achieving "take off" in which there is a marked acceleration of growth (Japan being the notable exception, and perhaps some of the other Asian tigers).
It does not follow from these results that aid is not effective in supporting growth and reducing poverty. There is good evidence that aid does lead to growth and poverty reduction (see my collection of articles here). But it does weaken the argument for "one big heave" of the kind envisaged by Gordon Brown’s proposed International Finance Facility, and supported by the Commission for Africa.
Jeff Sachs has done a tremendous job in drawing the world’s attention to the need to do more to achieve the Millennium Development Goals. He is right that more aid would make a positive contribution to reducing poverty. But it is unrealistic to expect that a even a large injection of aid is going to lead to a step change in the rate of economic development of poor countries. As another of my colleagues, Michael Clemens, showed last year, it takes a hundred years to raise school enrolment rates, not just fifteen years as envisaged by the Millennium Development Goals.
This is a call for realisim, not pessimism. It is a call for more action: the sooner we get on with it, the better. But we should be realistic about the speed with which we can expect to see change, and we should not set ourselves targets and expectations that we have no hope of meeting.