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Lesson 11 min 20 XP

Foreign Aid

Does aid work? The fierce debate over whether foreign assistance helps or hinders development.

The Aid Debate

Global foreign aid (Official Development Assistance) totals roughly $200 billion per year. Whether it helps or hurts is one of the most contentious questions in development economics.

The case for aid (Jeffrey Sachs): Poor countries are stuck in 'poverty traps' — too poor to invest in the basics (health, education, infrastructure) needed to grow. A 'big push' of aid can break the cycle. Specific interventions like bed nets for malaria, vaccines, and deworming pills have strong evidence of effectiveness.

The case against aid (William Easterly, Dambisa Moyo): Large-scale aid creates dependency, funds corrupt governments, distorts local markets, and substitutes for domestic revenue mobilization. Africa received over $1 trillion in aid since 1960, yet many countries remain poor. Aid agencies face perverse incentives — they need to spend budgets, not achieve results.

The middle ground (Angus Deaton, Abhijit Banerjee): Some aid works, some doesn't. The question is not 'does aid work?' but 'which specific interventions, in which contexts, produce measurable results?' Randomized controlled trials (RCTs) can help answer this question.

Foreign Aid | Model Diplomat