Foreign Aid at Cato Unbound

This month’s Cato Unbound focuses on foreign aid. I found Branko Milanovic’s criticism of William Easterly very compelling. Perhaps Easterly’s full-length book will contain nuances that accomodate Milanovic’s objections.

I found Deepak Lal’s essay surprisingly pessimistic:

That is why in a recent book I had argued that short of direct or indirect imperialism there seems to be little hope of overcoming the domestic political obstacles to the efficient utilization of foreign aid, particularly in Africa, where most of the current efforts of the “do gooding” brigade in the developed world are rightly concentrated. Given this political constraint, the best the rest of the world could do for Africa is to keep its markets open for the free flow of trade and capital, but otherwise leave Africa alone, to sort out its own problems.

In an essay that Jim will surely enjoy, Steve Radelet writes:

Take a closer look: $2.3 billion over 50 years is $46 billion a year, a modest amount for any global capital flow. And only about half went to low income countries, with the rest to middle-income countries like Israel that didn’t need it. So we have around $26 billion a year for all the low income countries. This works out to be a rip-roaring $14 per person per year in low-income countries. Much of that goes to consultant reports or is tied to purchases in donor countries where it gets much less bang for the buck. As a result the recipients actually get far less than these figures indicate. So let’s cut the grandstanding. It ain’t much. In Easterly’s judgment, based on his opening vignette, because poverty still exists in Ethiopia after it has received all of $14 per person in aid per year (Ethiopia happened to receive exactly the average amount), “aid doesn’t work.” Please! …

And here is the dirty little secret: most of the published research over the past decade has shown a modest positive relationship between aid and growth—not in all countries, to be sure, but on average across countries over time.

I think that Milanovic’s exposure of Easterly’s argument’s weaknesses makes Lal’s stance more compelling, but Lal’s essay contains insufficient evidence to refute Radelet.

2 thoughts on “Foreign Aid at Cato Unbound

  1. Our Word is Our Weapon

    Easterly vs the facts

    I’ve been slowly brewing quite a long post exploring William Easterly’s arguments on poverty traps, but in the meantime it would be a shame if I didn’t highlight the recent flurry of discussion around the publication of his new book….

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