FOREIGN AID MYTHS….While we’re on the topic of foreign aid, Foreign Policy did one of their useful “Think Again” features on the topic a few months back. It seems to be lurking behind a subscriber firewall, so here are a few relevant myth-busters summarized:
Aid can do a lot of good. Jesse Helms famously claimed that foreign aid merely “lined the pockets of corrupt dictators, while funding the salaries of a growing, bloated bureaucracy.” But, according to FP, “one recent study found that every dollar in growth-oriented aid added $1.64 on average to the incomes of recipient countries.” (If anyone knows what study this is, feel free to post in comments and I’ll link it.)
The key to development is both trade and aid. “Aid without trade?or more accurately, aid without the creation of a robust private sector?cannot stimulate long-term growth and development.” At the same time, trade isn’t enough. South Korea?one of those famous “export-led industrialization” states that globalization buffs love to tout?still received nearly $100 per person in aid between 1955 and 1972. (South Korea also deftly employed a number of interventionist trade policies during that time, but that’s another story entirely?)
Private investment and other financial flows won’t do the trick. Capital flows go mostly to a small number of middle-income countries, not the countries that need aid the most.
Aid can do little to overcome poor governance and destructive policies. Though the authors claim that under “certain circumstances,” well-targeted aid to these countries can help improve people’s lives. What circumstances, I wonder.