AID: Consider the purpose!

Fivethirtyeight.com, one of my favorite blogs that features stellar insights on American politics and even contributed some great analysis on the Iranian political crisis, has waded into the waters of foreign aid today.  And it made for a pretty lame post.

First of all, it’s important to point out that drawing conclusions from aid statistics is one of the most difficult topics for economic analysis.  Aid flows, economic development, corruption, and human development levels in countries are all interconnected,  meaning that analysis will suffer from reverse causality bias (For instance, if you’re looking at the relationship between a country’s GDP and aid flows, it could be the case that aid causes a lower GDP– bad news for donors– or that poorer countries receive more aid for that very reason, because they are poor.  So which conclusion is right? See, not so easy…)

The whole point of the 538 post– I think– is that aid has accomplished very little in the last 30 years despite a tremendous increase in aid flows.  I’m honesstly not too sure what the writer was hoping to contribute to the aid debate because there are some excellent, and highly readable, reports done on aid effectiveness, especially from the Center for Global Development.  These reports include econometric analysis to tease out the myriad cases of reverse causality.

And the 538 post doesn’t even feature econometrics.  It basically amounts to some bar charts and line graphs purporting to achieve what every statistician, including Nate Silver the founder of 538, knows is impossible: causation when correlation is all you have. 

But that’s not my pet peeve– I’ll leave that one to Nate.  Mine is the attempt by many scholars and commentators to lump aid into one pot and try to draw conclusions from the effort.   I want to be clear– this mistake is quite common, so 538’s post today is not the first to do so (though it was a particularly clumsy effort.)  William Easterly, normally an outstanding scholar on aid, threw off the cloak of academic honesty to pursue his nemesis (Jeffrey Sachs.) Writing as a anti-aid public intellectual, Easterly argued that aid hasn’t worked despite massive and growing aid flows. (See The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good)

Whenever aid is the subject, the question must be asked: why was the aid given?  Foreign aid is not, contrary to misconceptions, always aimed at helping the poor or grow an economy.  And even then, providing direct humanitarian aid to the poor and facilitating economic development are two different causes.   Some reports on aid suggest that the first type (humanitarian) actually has negative or no effect on GDP growth, whereas the latter may have a helpful, harmful, or no effect depending on the report you read. 

But lots of aid commitments aren’t even for such salutary motives.  Aid is often given for foreign-policy reasons (why Egypt and Israel were two of America’s largest aid recipient until recently.)  Trade ties can motive aid giving (Japan and, now, China are notorious for this.) Cultural ties or colonial past often promotes aid donations.  This is not to mention that the Cold War skewed the aid game for much of the time period that many aid studies consider. 

Now, all of this does not mean that looking at the effect of aid on, say, human development over the past 30 years isn’t a worthy exercise.  But it is unfair to take from this exercise the conclusion that aid has been ineffective and is likely to be in the future.  It is simply not academically honest to evaluate aid’s effectiveness based upon a standard that was not the primary purpose of much of the aid given during the time period in question.

Some policymakers are beginning to understand the purposes of aid better and how destructive and ineffective an unwieldy, multi-purpose aid budget can be.    Let that be the conclusion drawn from these stories:  Aid can be better, not aid doesn’t work. 

Photo from DevEx.

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