Aid works for redistribution

Much of the literature about the effectiveness (or otherwise) of aid revolves around whether aid accelerates economic growth.

But there is another purpose to giving aid: to redistribute income and consumption from rich to poor.  If aid is taken from people who are quite well off, and used to put food in the bellies of people who would otherwise go to bed hungry, it might have no lasting or measurable impact on the economy, but the world would be a better place as a result of this redistribution.

A new paper by World Bank economists Francois Borguignon, Victoria Levin and David Rosenblatt looks at the impact of aid on global inequality (ignoring, for these purposes, any dynamic effects on growth).  The paper finds that aid does indeed reduce global inequality; and that while it is extremely small in terms of changes in standard inequality measures, it is of some importance for the lowest decile of the world's income distribution. The authors also find that some of this impact is counteracted by trade barriers imposed by high-income countries.

They make this interesting observation: 

Although this paper is about international inequality, we know that the actual level of global inequality of income is extremely high ­ with a Gini coefficient between 0.64 (Milanovic 2005) and 0.66 (Bourguignon and Morrisson 2002). If this level of inequality were to exist within a single country, that country would probably experience substantial social strife. That this does not happen in the world simply means that, as of today, there is nothing like a global community.

When writers such as Charles Dickens wrote about the lives of the poor in England and other newly industrialised countries, they made it impossible for society to continue tolerate or sustain the inequality and poverty in their midst.  We desperately need that same realisation for the world. 

Hat tip: PSD blog 

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