On many issues, such as higher education, the Centre for Independent Studies seems to care deeply about facts and data. But on certain topics, it seems only too happy to throw evidence out the window in favour of rhetoric. One of these is foreign aid. Last year, it was Helen Hughes. This year, it’s Deepak Lal. Neither Hughes nor Lal has done hard-core econometric research on the topic, and both are drawing conclusions that fly in the face of the best economic evidence, such as this study by Craig Burnside and David Dollar:
This paper uses a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP. In panel growth regressions for 56 developing countries and six four-year periods (1970-93) the policies that have a large effect on growth are fiscal surplus, inflation, and trade openness. We construct an index of these three policies, interact it with foreign aid, and instrument for both aid and aid interacted with policies. We find that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. In the presence of poor policies, on the other hand, aid has no positive effect on growth. This result is robust in a variety of specifications that include or exclude middle-income countries, include or exclude outliers, and treat policies as exogenous or endogenous. We examine the determinants of policy and find no evidence that aid has systematically affected policies – either for good or for ill. We estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donorsâ€™ pursuit of their own strategic interests. In a counterfactual we reallocate aid, reducing the role of donor interests and increasing the importance of policy: such a reallocation would have a large, positive effect on developing countriesâ€™ growth rates.
It’s quite reasonable to be sceptical about the relationship between aid and growth – indeed, the William Easterley vs Jeff Sachs debate over recent years has been fascinating, well-informed, and critically important. But please, let’s give a little more weight to careful analysis of the evidence, and less to anecdotes and prejudice. Any thinktank that wants to be taken seriously in the economic debate should probablyÂ make sure that its assertions are in line with the research.