Foreign Aid Fails Poor Countries — Economic Freedom is Key

Friday, September 8, 2006

Once greater economic freedom is taken into account, poor nations, far from being caught in a “poverty trap,” grow faster than rich nations. “What the research in this edition of Economic Freedom of the World suggests is that economic freedom, rather than foreign aid, does have a powerful positive impact and is a better approach,” says co-author of the report, James Gwartney, professor of economics at Florida State University.

“Economic freedom is unambiguously good for the poor, not just in terms of incomes, but also in terms of the whole range of development indicators such as longevity, access to clean water, or the extent of child labor,” states Ian V?squez, director of the Cato Institute’s Project on Global Economic Liberty.

Economic freedom has a greater impact than foreign aid in helping people in poor nations escape poverty, according to the Economic Freedom of the World: 2006 Annual Report, released today by the Cato Institute in conjunction with the Fraser Institute of Canada.

In new research published in this year’s report, economist William Easterly of New York University compares the impact of economic freedom and foreign aid on economic growth in the poorest nations. Demonstrating that foreign aid has no positive impact on economic growth in the poorest nations, Easterly’s research shows that economic freedom has a positive impact on prosperity and helping lift nations out of poverty.

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Source: Cato Institute (link opens in a new window)