Earlier this month, Princeton’s Angus Deaton was awarded the Nobel Memorial Prize in Economic Sciences—an award richly deserved for Deaton’s path-breaking work on consumption, poverty, and welfare. He has been instrumental in improving the measurement of consumption and poverty through household surveys, and helping us better understand how much households spend, what they spend on, and how much they save. Bravo.
With so much excellent research on his resume, it is disappointing that so much attention has been given to Deaton’s much more controversial and less well-grounded opinions on foreign aid, which are not his sweet spot. He expressed these opinions most forcefully in a chapter of his recent book The Great Escape: Health, Wealth, and the Origins of Inequality, an otherwise excellent book, in which he argues that aid does not work, and that it can accelerate corruption and keep bad leaders in power. But the aid chapter is disappointing because unlike the rest of the book, it makes much less reference to recent research, perhaps because much of the research contrasts with his negative views. Several prominent economists found Deaton’s views on aid puzzling, including Columbia University’s Chris Blattman and Georgetown University’s Martin Ravallion, among others. Several non-academic reviewers also noticed how out of place the aid chapter was with the rest of the book.
Of course, the evidence on aid is not definitive. Partly that is because aid for different purposes has different impacts in different country contexts. The impacts are variable, and not all of it works well. In part it is also because it is really hard to find absolute evidence and uniform agreement on almost anything in development, including private investment, trade, governance reforms, and a slew of other issues. Some even take issue as to whether the Green Revolution had a net positive impact (which I find baffling). And, as with any issue, the press and the public tend to give more much more attention to negative opinions and bad news than they do to success, especially moderate success over longer periods of time (which is the course proponents of would expect).
Still, a growing body of recent evidence tends to show a net positive impact of aid on development, as I discuss in my new book The Great Surge: The Ascent of the Developing World. For example, there is wide agreement that aid programs have saved millions of lives in recent decades. The United States has led the way in supporting efforts to fight HIV/AIDS, and deaths have fallen by more than one-third in just seven years. Malaria deaths have dropped in half since 2000, again in large part due to the President’s Malaria Initiative. Tuberculosis infections have fallen by 25 percent just since 2002, and the world is on the brink of eradicating polio once and for all. Donor-financed programs helped increase the number of children receiving basic vaccinations from 20 million in 1980 to 200 million today, and in reducing deaths from diarrhea from 5 million to less than 800,000 children a year. Remarkably, the rate of child death has fallen in every single country in the world since 1980—there are no exceptions. Leadership and hard work in developing countries deserve much of the credit, but these gains would not have happened without foreign assistance.
Aid has also supported progress in education, especially girls’ education. In Afghanistan, less than 1 million children attended schools in 2002, and almost all of them were boys. Girls and women were excluded. But since then, the Afghan government, USAID, and other donors have built more than 13,000 schools, recruited and trained more than 186,000 teachers, and increased net enrollment rates to 56 percent. Just one decade later in 2012, there were 8 million children in school—more than eight times more than in 2002—including 2.5 million girls.
More contentious are the debates about aid and economic growth. But even here the pendulum has swung, with more evidence that aid has a modest positive impact on growth. My colleagues Michael Clemens, Rikhil Bhavnani, Sami Bazzi and I looked back at three of the leadings papers that found no impact of aid on growth and found that with a few modest (and sensible) adjustments to the underlying models, a consistent positive relationship emerged. Our findings are consistent with the conclusions of recent research by Henrik Hansen, Finn Tarp, Robert Lensik, Howard White, Sebastian Galiani, Sandrina Moreira, Channing Arndt, Markus Brukner, and many others, all published in respected academic journals. Unfortunately, the skeptics, including Professor Deaton, rarely mention this research. The Economist magazine, long filled with skeptical articles on aid, recently changed its tune and concluded that most evidence shows that aid boosts growth.
Nobel laureate Joseph Stiglitz argues that “Foreign aid … for all its faults, still has brought benefits to millions, often in ways that have almost gone unnoticed.” Martin Ravallion concluded that “the recent macro evidence is more consistent with the claim that sustained aid commitment to poor countries is good for their economic growth over the longer-term.” Paul Collier found that “A reasonable estimate is that over the last 30 years aid has added around one percentage point to the annual growth rate of the bottom billion.”
Finally there is Professor Deaton’s charge that aid keeps bad governments in power. There is no question that over the years—especially during the Cold War—the United States and other rich countries financed some of the world’s nastiest dictators, often explicitly trying to keep them in power. Washington also supported them with trade, diplomatic, military, and other foreign policy tools. But whether or not to use aid and these other policy instruments in these circumstances is a debate about how and when the U.S. should support its political allies. The fact that Washington succeeded in propping up dictators should not be seen as a fundamental weakness of aid per se, any more than it should be used to claim that trade, diplomacy, and military support never work either.
Still, the question remains on the relationship between aid and political systems. But once again, recent research suggests that since the end of the Cold War, the relationship is opposite of what Professor Deaton suggests: aid has helped support democratic transitions both by reinforcing broad development progress and by supporting civil society organizations, stronger judicial systems, and multiparty elections. Berkeley’s Thad Dunning found that foreign aid had a positive effect on democracy in Africa after the Cold War. Duke’s Sarah Bermeo found that after 1992 foreign aid from democratic donors was associated with an increase in the likelihood of a democratic transition (aid from non-democratic donors—such as China—did not have this impact). Similarly, Villanova’s Erasmus Kersting and Christopher Kilby found a positive relationship between aid and democracy. The University of Missouri’s Simone Dietrich and Joseph Wright of Pennsylvania State University concluded that “economic aid increases the likelihood of transition to multiparty politics, while democracy aid furthers democratic consolidation by reducing the incidence of multiparty failure and electoral misconduct.” These studies did not find support for the idea that aid as a general matter undermines democracy or keeps autocrats in power.
As a recent example, donor pressure in Senegal—in support of the majority of local voices—had a major impact in thwarting former president Abdoulaye Wade from changing the constitution and seeking a third term in office in 2012. Far from supporting dictatorship, donor pressure helped the citizens of Senegal achieve an open and fair election for a new president. Similarly, in 2012, Russia banned U.S. assistance to a wide range of pro-democracy civil society groups because of what it saw as American “meddling” in its internal affairs. Vladimir Putin clearly did not see these programs as supporting dictatorships—he sees them as strong voices for democracy and accountability, and he wanted to squelch them. President Ellen Johnson Sirleaf of Liberia sees a strong connection between aid and preventing recurrence of the long civil war in her country. “Without international support,” she has said, “Liberia would not have made nearly as much progress, and might have even plunged back into conflict.”
Of course, foreign aid has not been the major driver of development progress over the last 20 years, nor will it be in the future. And while aid programs have improved, they are far from perfect. Much can be done to strengthen their impact. Donors have begun to do so in recent years by reducing conditionality, increasing country ownership, focusing much more on measuring results, emphasizing outcomes rather than inputs, and using aid to encourage private sector investment, among other improvements. The right way forward is to focus on ways to continue to further strengthen aid in the future and build on its successes, such as through one of Professor Deaton’s suggestions to spend more on supporting basic research into new vaccines, medicines, and other technologies. But broad statements about aid that are not supported by research evidence do not help move this agenda forward.
I think blended finance, development finance, is what’s needed, is the future. The U.S. is using a model that was created 40 years ago and I think it’s way past time for modernizing our capabilities.