Rob Katz

“Sad study” highlights aid’s ineffectiveness

What is the impact of development aid on economic growth?

This critical question has been the topic of debate among development experts, economists, policymakers, civil society, and business–especially here on Some answers may be emerging, and they point out that development aid is not sufficient to stimulate broad economic growth (thanks, AdamSmithee):

The conclusions: aid had a small, statistically insignificant positive effect on investment and a small, statistically significant negative effect on savings. Overall, aid has a small, statistically insignificant positive impact on growth, with more recent studies suggesting an ever-smaller impact. The evidence for aid working better in good policy environments is very weak, the evidence for declining marginal returns is a little stronger…Ignoring the issue of significance, the metastudy results suggest that aid has increased the income per capita in poor countries as a whole by 20 percent since the 1960s.

Private sector strategies have shown effectiveness at the micro level; there aren?t enough data points for a macro level study such as this one by Doucouliagos and Paldam. Their study analyzes a broad set of robust economic literature, and finds that development aid hasn?t been terribly effective–isn?t it time to admit that aid itself is not sufficient, and that there’s room for private sector involvement in poverty reduction?

(Originally via PSD Blog)