Monday, September 11, 2006

How to Best Target Foreign Aid

Foreign aid to developing nations has typically been used to fund long-term projects like infrastructure (roads, education systems, etc.). An article in Business Week from Edward Miguel says that it should be used instead to repair the short-term effects of natural catastrophes:

Our research find that a 5% drop in per capita income due to drought increases the likelihod of a civil conflict [in African countries] in the following year by nearly one half. That's a very large effect.

...Currently, most foreign aid focuses on long-term investments in infrastructure of education but does little to deal with such short-term triggers of violence as drought or falling export commodity prices. But our research suggests a larger share of aid should aim to dampen the sharp falls in income that actually generate recruits for rebel movements.

There is no link to the article, but here is a link to the Marginal Revolution post that cited it and also an opinion from economist Tyler Cowen that his issue is that he does not think the foreign aid would end up in the hands of the poor in these cases.

(Source: Marginal Revolution)


Anonymous said...

the article makes a good point. When the economy takes a sharp turn for the worst, some drastic or extreme measure like civil war or a revolt might seem more attractive. however, though aid to short term problems might maintain some stability in these countries, it may not provide the long term economic stability that building roads and the like would provide. this article really contradicts the "give a man a fish; he'll eat for a day. teach a man to fish; he'll eat for a year" sentiment. I think this idea might work in the short term, but i have my reservations about if it is a good plan for the long term
-jacob hormes

Anonymous said...

I think that the long term help to each country in need is very necessary but if no short term help is provided, than there may be no country to enjoy those long term benefits. Although some short term conflicts arise with fury and then die out on their own, many can result in civil war, and then all the money "invested" in these long term projects goes to waste. Tyler Cowen makes a good point of saying that money for short term problems could very well end up in the wrong hands, because, indeed, these countries are very needy and some time have unstable sources of government. However, Tom Grey makes a startling statement saying that all aid fuels corruption and that the way to get rid of poverty is to give everyone jobs. I believe this statement is completly untrue. I believe aid is a necessity for some countries to get on the right track economically and provide for its people. The problem with his second statement about jobs is that not every unemployed person is willing to work, so there for, poverty is not so simply solved.
-Sara Diehl