Thursday, September 11, 2008

Foreign Aid: Fail

Here are Easterly and Pfutze in a recent (Spring 2008) article in the Journal of Economic Perspectives:

"Our findings on aid best practice tend to confirm a number of long-standing
complaints about foreign aid, notwithstanding the aid agencies’ perpetual claims
that they are fixing past problems. The aid effort is remarkably splintered into many
small efforts across all dimensions—number of donors giving aid, number of
countries receiving aid from each donor, and number of sectors in which each
donor operates. A lot of aid still goes to corrupt and autocratic countries and to
countries other than those with the lowest incomes. Aid tying, the use of food
aid-in-kind, and the heavy use of technical assistance persist in many aid agencies,
despite decades of complaints about these channels being ineffective. In addition,
some agencies have remarkably high overhead costs. The broad pattern that
emerges from our evidence is that development banks tend to be closest to best
practices for aid, the UN agencies perform worst along each dimension, and the
bilaterals are spread out all along in between. Explaining why each of these patterns
persists over time raises an interesting agenda for research in political economy.
The aid business now spends $100 billion dollars a year of money each year,
seeking to help the world’s poorest people. It is a sad reflection on the aid
establishment that knowing where the money goes is still so difficult and that the
picture available from partial knowledge remains so disturbing."

The UN World Food Program (which tied for last in the Easterly-Pfutze rankings) has responded and E-P have responded to them. While both are interesting and worth reading, I would be remiss in my duties if I didn't point out two of the most entertaining statements in the UN's response letter:

1. "WFP does not decide where to provide assistance"

Really? They just open the doors and see who shows up to cart off the food?? Or they spin a roulette wheel with country names on it?

2. "The world consumes more than it produces"

Yikes! I know that it's been reported that some North Koreans eat grass and leaves, but I don't think the statement can be true, can it? Are we eating the production of future generations?


John Thacker said...

"The world consumes more than it produces"

I suspect that they mean something along the lines of we're using up natural resources, or something like that.

The world is also imports a lot of energy from the sun without giving anything back.

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