Living in Ethiopia for the last three years, I saw aid working every day. I saw children going to school, health workers in rural villages, and food or cash preventing hunger for the poorest people. The academic debates about aid effectiveness seem surreal when you are surrounded by tangible, visible evidence of the huge difference aid makes to people’s lives.
But on the whole the sceptics are not disputing that kids are going to school because of aid. They are asking what effect that has on the country as a whole. Does it lead to economic growth? Does it drive up the exchange rate and so damage competitiveness? Do governments become dependent on donors and so less accountable to their own citizens? Does aid keep the bad guys in power?
It is possible that aid is effective in terms providing people with basic services, and at the same time that it is not effective at increasing economic growth. It is even possible that aid simultaneously does short-run good (better services) and long-run harm (worse institutions).
It was this difference between perspectives which made me want to respond to the call for evidence in an investigation into aid by the Economic Affairs Select Committee of the British House of Lords. This committee includes some well-known economists and other public figures, and has produced a number of influential reports, notably an investigation into the economics of immigration. They are now examining the ‘Economic Impact and Effectiveness of Development Aid’. The call for evidence asked for short submissions, preferably under than six pages, which is not a lot of space to cover wide-ranging questions from whether aid affects economic growth to how the British government should improve its aid.
My written submission is now on the CGD website. The submission begins by trying to address the question of what aid is for, which seems to be the source of much of the confusion about whether aid works. It then reviews the evidence about whether aid leads to economic growth (answer: we don’t know) and whether aid improves people’s lives (answer: yes it often does). The interesting question is not whether aid works, but which aid works. But there are also possible adverse effects of aid, and these are potentially serious. These appear to be mainly a consequence of how aid is given. The submission argues that they can largely be eliminated if donors give better aid. But that requires donors to overcome domestic political obstacles to reform of aid. The evidence finishes with ten suggestions for how to make aid work better. (I’m very grateful to Stephanie Majerowicz for her help with this submission.)
It is a good discipline to be concise, but it is not possible to do full justice in six pages to the nuances of these issues. I’ve tried address the big questions with what I hope are balanced and dispassionate judgments. I hope you will let me know in the comments if you think I’ve got these right.