Posted by: Jeff | December 19, 2009

Measuring Aid Effectiveness Effectively

Chris Blattman has been ruminating on the debate about aid effectiveness and the critical viewpoint that there is no correlation between increasing aid and economic growth:

Aid, if it achieves the UN’s goals, is often saving the lives of the poorest. In this respect, we can say aid has been successful. And it is this very success that could explain why we don’t see any effect on growth. In fact, for the first few decades of aid, it might even appear to reduce growth.If aid saves the lives of millions of poor infants, or mothers in childbirth, at roughly the same rate a country can industrialize, then we’ll see an increase in the number of poor people at about the same rate that we increase GDP per person. Unless aid is also spurring faster industrial growth, the growth figures essentially won’t change. The things that aid does well-increasing primary education, saving lives, and leading to a demographic transition (essentially lower population growth-may reasonably take a generation or two to impact industry.

So if aid has been good at saving lives now, but not (in the short term) at spurring industry, then we shouldn’t be surprised that we don’t see take-offs. Rather, in most countries aid might actually lower the short term, measured number.

But by almost any measure, though, aid would still be a huge success. Maybe the “failure of aid” is really a failure to industrialize, disguised.

I agree.  The argument made by critics is that since macroeconomic performance does not always improve in relation to aid flows, the whole industry around aid is failing.  I think this is a misread of the purpose of aid.  My personal thought is that the most effective industrialization strategies come from the state (see South Korea, Vietnam, Brazil).

Aid, as an end in and of itself, is designed to improve educational facilities and train teachers; to fund hospitals and subsidize pharmaceutical costs; and to provide technical assistance that promotes civic values and reforms institutions to foster effectiveness.  It’s often about social improvement as a foundation for economic growth.  It doesn’t necessarily include a business plan for creating or revitalizing industry.  Aid can create citizen demand for increased state capacity, but as Blattman notes, you’re talking about generational changes that don’t happen overnight – hence, no quick outcomes of aid or immediate correlations between aid and economic growth.

I’ve mentioned before that I view the biggest problem related to development as the inability (or unwillingness) to take into account lag time that is inherent in so many development efforts. Development’s reliance on short-term funding and the subsequent focus on short-term results really undercuts a lot of the meaningful efforts that could be made, and the narrow measurement of short-term performance in just a few indicators also obscures the overall role of aid by building false consensus about the industry’s overall effectiveness.

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