Aid effectiveness: have we learnt anything? Sam Jones University of Copenhagen September 2015 1 / 18
Definition Aid effectiveness research asks: has foreign aid been effective in raising welfare in recipient countries? Point of departure: there is a consistent mapping from higher incomes to higher welfare. So, economic growth is a fundamental final performance metric for aggregate aid. 2 / 18
Definition Aid effectiveness research asks: has foreign aid been effective in raising welfare in recipient countries? Point of departure: there is a consistent mapping from higher incomes to higher welfare. So, economic growth is a fundamental final performance metric for aggregate aid. 2 / 18
Definition Aid effectiveness research asks: has foreign aid been effective in raising welfare in recipient countries? Point of departure: there is a consistent mapping from higher incomes to higher welfare. So, economic growth is a fundamental final performance metric for aggregate aid. 2 / 18
Outline Introduction 1 2 Disagreements 3 Responses 4 Lessons Implications 5 3 / 18
Disagreements How have economists answered this question? “If you put two economists in a room, you get two opinions ... ... unless one of them is Lord Keynes, in which case you get three opinions.” (Winston Churchill) 4 / 18
Disagreements How have economists answered this question? “If you put two economists in a room, you get two opinions ... ... unless one of them is Lord Keynes, in which case you get three opinions.” (Winston Churchill) 4 / 18
Disagreements How have economists answered this question? “If you put two economists in a room, you get two opinions ... ... unless one of them is Lord Keynes, in which case you get three opinions.” (Winston Churchill) 4 / 18
Foreign aid debates Economists have been divided about the effectiveness of foreign aid, for decades. William Easterly, 2005 “Spending $2.3 trillion ... in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.” Jeffrey Sachs, 2009 “Without foreign aid, Rwanda’s pathbreaking public health successes and strong current economic growth would collapse.” 5 / 18
Foreign aid debates Economists have been divided about the effectiveness of foreign aid, for decades. William Easterly, 2005 “Spending $2.3 trillion ... in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.” Jeffrey Sachs, 2009 “Without foreign aid, Rwanda’s pathbreaking public health successes and strong current economic growth would collapse.” 5 / 18
Foreign aid debates Economists have been divided about the effectiveness of foreign aid, for decades. William Easterly, 2005 “Spending $2.3 trillion ... in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.” Jeffrey Sachs, 2009 “Without foreign aid, Rwanda’s pathbreaking public health successes and strong current economic growth would collapse.” 5 / 18
Foreign aid debates Some would suggest we have learnt very little: Sebastian Edwards, 2014 “Overall, the results from this large body of research have been fragile and inconclusive.” Nancy Qian, 2014 “The empirical literature on the impact of foreign aid is perhaps one of the most controversial ones in development and growth economics. ... [But] a large number of studies have emerged to dispute the positive effects of foreign aid.” 6 / 18
Foreign aid debates Some would suggest we have learnt very little: Sebastian Edwards, 2014 “Overall, the results from this large body of research have been fragile and inconclusive.” Nancy Qian, 2014 “The empirical literature on the impact of foreign aid is perhaps one of the most controversial ones in development and growth economics. ... [But] a large number of studies have emerged to dispute the positive effects of foreign aid.” 6 / 18
Foreign aid debates Some would suggest we have learnt very little: Sebastian Edwards, 2014 “Overall, the results from this large body of research have been fragile and inconclusive.” Nancy Qian, 2014 “The empirical literature on the impact of foreign aid is perhaps one of the most controversial ones in development and growth economics. ... [But] a large number of studies have emerged to dispute the positive effects of foreign aid.” 6 / 18
Why the disagreement? Four reasons, at least: 1 Ideology : can the public sector stimulate growth? 2 Endogeneity : aid is (mostly) given to poor countries. 3 Extensive chains : aid → X → Y → growth. 4 Measurement : aid is not a homogeneous good. 7 / 18
Why the disagreement? Four reasons, at least: 1 Ideology : can the public sector stimulate growth? 2 Endogeneity : aid is (mostly) given to poor countries. 3 Extensive chains : aid → X → Y → growth. 4 Measurement : aid is not a homogeneous good. 7 / 18
Why the disagreement? Four reasons, at least: 1 Ideology : can the public sector stimulate growth? 2 Endogeneity : aid is (mostly) given to poor countries. 3 Extensive chains : aid → X → Y → growth. 4 Measurement : aid is not a homogeneous good. 7 / 18
Why the disagreement? Four reasons, at least: 1 Ideology : can the public sector stimulate growth? 2 Endogeneity : aid is (mostly) given to poor countries. 3 Extensive chains : aid → X → Y → growth. 4 Measurement : aid is not a homogeneous good. 7 / 18
Outline Introduction 1 2 Disagreements 3 Responses 4 Lessons Implications 5 8 / 18
Responses Yes ... it is difficult to give a clean answer about aggregate aid effectiveness effectiveness. But, this is the case in other areas of economics. So, what should researchers do?: Change the question. Focus on parts of aid effectiveness where we can obtain rigorous identification of causal effects. > e.g., U.S. Food Aid and Civil Conflict, (Nunn & Qian, AER 2014) This kind of research is important and will continue. 9 / 18
Responses Yes ... it is difficult to give a clean answer about aggregate aid effectiveness effectiveness. But, this is the case in other areas of economics. So, what should researchers do?: Change the question. Focus on parts of aid effectiveness where we can obtain rigorous identification of causal effects. > e.g., U.S. Food Aid and Civil Conflict, (Nunn & Qian, AER 2014) This kind of research is important and will continue. 9 / 18
Responses Yes ... it is difficult to give a clean answer about aggregate aid effectiveness effectiveness. But, this is the case in other areas of economics. So, what should researchers do?: Change the question. Focus on parts of aid effectiveness where we can obtain rigorous identification of causal effects. > e.g., U.S. Food Aid and Civil Conflict, (Nunn & Qian, AER 2014) This kind of research is important and will continue. 9 / 18
Responses Yes ... it is difficult to give a clean answer about aggregate aid effectiveness effectiveness. But, this is the case in other areas of economics. So, what should researchers do?: Change the question. Focus on parts of aid effectiveness where we can obtain rigorous identification of causal effects. > e.g., U.S. Food Aid and Civil Conflict, (Nunn & Qian, AER 2014) This kind of research is important and will continue. 9 / 18
Responses But should we stop here? No! “ An approximate answer to the right question is worth a great deal more than a precise answer to the wrong question .” John Tukey We cannot easily generalize from narrow components of aid to answer the bigger question: does aid work? If we don’t try, weak generalizations and anecdotes (ideology) WILL dominate. Thesis: recent research has provided new and consistent insights about aggregate aid effectiveness. 10 / 18
Responses But should we stop here? No! “ An approximate answer to the right question is worth a great deal more than a precise answer to the wrong question .” John Tukey We cannot easily generalize from narrow components of aid to answer the bigger question: does aid work? If we don’t try, weak generalizations and anecdotes (ideology) WILL dominate. Thesis: recent research has provided new and consistent insights about aggregate aid effectiveness. 10 / 18
Responses But should we stop here? No! “ An approximate answer to the right question is worth a great deal more than a precise answer to the wrong question .” John Tukey We cannot easily generalize from narrow components of aid to answer the bigger question: does aid work? If we don’t try, weak generalizations and anecdotes (ideology) WILL dominate. Thesis: recent research has provided new and consistent insights about aggregate aid effectiveness. 10 / 18
Outline Introduction 1 2 Disagreements 3 Responses 4 Lessons Implications 5 11 / 18
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