The Foreign Aid Debate: Big Pushes, Planners and Searchers

Official development assistance, the formal name for government foreign aid, is money or help given on generous terms by rich-country governments and international agencies to promote development in poorer countries. Beyond the question of whether aid works on average, development economists argue fiercely about how it should be designed. This lesson focuses on the rival visions and the practical details that often decide success or failure.

How much aid, and in what form

In 1970 the United Nations endorsed a target for rich countries to give 0.7 percent of their national income as aid each year. Only a handful, such as Norway, Sweden, Luxembourg and Denmark, have regularly met it; most give far less.

Aid comes in several forms. Humanitarian aid responds to emergencies such as earthquakes and famines. Project aid funds a specific school, road or vaccination campaign. Budget support gives money directly to a recipient government’s budget to spend on its own priorities. Aid can also be given as grants, which need not be repaid, or as concessional loans with low interest rates and long repayment periods.

The big push view

Economist Jeffrey Sachs, in his 2005 book The End of Poverty, argued that the poorest countries are caught in a poverty trap: they are too poor to save and invest enough in health, schools and infrastructure to begin growing. A coordinated big push of much larger aid, spent on proven interventions such as bed nets, fertilizer and clinics, could break the trap.

The skeptics

William Easterly, in The White Man’s Burden in 2006, replied that grand plans made by distant experts often fail because planners lack local knowledge and face little accountability. He contrasted planners and searchers: planners announce big goals from the top down, while searchers look for what actually works on the ground, test it, and scale up only what succeeds. Zambian economist Dambisa Moyo went further in Dead Aid in 2009, arguing that large, long-term aid flows to governments in Africa had fed dependency and corruption.

Design problems that matter

Tied aid requires the recipient to spend the money on goods or services from the donor country, such as buying the donor’s trucks or hiring its consultants. Studies have found this raises costs, often by fifteen to thirty percent, which is why many donors have reduced it. Other challenges include too many donors each demanding their own reports, aid that is unpredictable from year to year, and money that strengthens governments that are not accountable to their own citizens.

Reforms have tried to address these problems by channeling aid through recipient countries’ own systems, tying funding to measurable results, and giving more to places with better governance. A growing movement also favors rigorous evaluation of each program, an idea covered later in this module.