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.