foreign aid effectiveness

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Recommended: The importance of foreign aid

Introduction
Foreign Aid has always been scrutinized for the fact if it is actually effective for the country receiving the aid. The stated goal of foreign aid is to reduce poverty and promote economic growth in the country. There have been mixed results with the outcomes of the countries receiving the aid.
Foreign aid critics, noble laureates Friedman and Bauer (1950) argue that aid strengthened and enlarged central governments and as a result aid did more damage than good, these critics see aid as being used as a political tool that distorts incentives and increases corruption. Brautigam and Knack (2004) concluded and found evidence that suggested that foreign aid has a negative impact on growth. They argue that it helps corrupt dictators and large business corporations to take advantage of the poor, uneducated and helpless population and environment of the developing countries. This is enforced by showing how despite 4 decades of aid there has been an increase in poverty in Congo, Haiti, New Guinea, Ethiopia and Sudan.
Supporters Sachs and Stiglitz argue that aid has had a very positive overall record and has helped many countries like Bostwana, Korea, Indonesia, Taiwan, Ghana, Mozambique and Uganda. Before these countries received aid they were on the brink of economic collapse, but aid helped these countries in fighting poverty, accelerating economic growth and achieving development objectives in these low-income countries, in having increased investment and introduced better health and education programs. Dalgaard et al. (2004), and Karras (2006) have found evidence in their research that foreign aid has a positive impact on the growth and welfare of the recipient country.
This paper focuses on how effective Official Devel...

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...1–216.

July 2006 A Primer on Foreign Aid

By Steven Radelet

Morrissey, O. (2001), "Does aid increase growth?," Progress in Development Studies, vol.1, no.1, p.37-50.

Easterly, William, Ross Levine, and David Roodman. "New Data, New Doubts: A Comment on Burnside and Dollar's 'Aid, Policies, and Growth'" The American Economic Review 94.3
(2004): 774-80.

Hansen, Henrik and Finn Tarp. 2001. Aid and growth regressions. Journal of Development

Economics 64, no. 2: 547-570.

Nunnenkamp, Peter. 2005. More development aid is not enough: Target-oriented support of poor African countries with good government leadership. Afrika Spectrum 40, no. 3: 445-470.

Sachs, Jeffrey, et al, (2004), “Ending Africa’s Poverty Trap,” Brookings Papers on Economic

Activity 1:2004, pp 117-240.

Stiglitz, Joseph, 2002. “Overseas Aid is Money Well Spent,” Financial Times (April 14)

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