24 June 2013

Aid Cause Economic Growth? Not so Much

Economist Michael Clemens wanted to know if foreign aid prompts economic growth in developing countries. It is a tough question to answer.

Poor countries that receive aid do show economic growth. But is it the aid that causes the growth, or is growth due to other factors? Experts argue in favor of both sides of that equation. Clemens says it remains a chicken-and-egg conundrum.

To try to figure it out, Clemens teamed up with fellow economists Steven Radelet, Rhikil Bhavnani and Samuel Bazzito to determine how aid impacts economic growth. They set aside short-term programs that would not show results for a long time - like women's empowerment campaigns and vaccine drives - and focused on more tangible projects with more immediate potential impacts. Those included transportation projects, infrastructure investments and agriculture support.

Things still got tricky. They looked at the changes over a five-to-ten year period, but had to control for things that are out of the control of aid projects. For example climate change effects, poor governance and civil conflict.

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