The American Spectator

Another Perspective

(Page 2 of 2)

World Bank economists Craig Burnside and David Dollar concluded that "aid is not promoting growth in the average recipient." Michael O'Hanlon and Carol Graham of Brookings wrote in their book-length study that "the negative relationship between aid flows and performance is clear at a general level."

The World Bank and IMF have responded to such criticism by claiming that they can use loans and grants to promote economic reform. But international agencies have been unable to buy the political will in aid recipients to adopt often socially disruptive changes. Reform is a continuing process that cannot succeed without broad-based local support.

Indeed, though Burnside and Dollar still backed aid in certain circumstances, they reported that "we find no systematic influence of aid on our index of fiscal, monetary, and trade policies." Former World Bank chief economist William Easterly reviewed nearly 1,000 "conditioned" Bank loans and concluded: "government mismanagement usually continued in these countries. The growth rate of income per person of the typical member of this group during the past two decades was zero."

p>Similar was the finding of IMF economists Raghuram G. Rajan and Arvind Subramanian in a 2005 study. Their conclusion was particularly damning because all Fund loans are theoretically conditioned on policy reform: br> /p>

We find little evidence of a robust positive impact of aid on growth ... . we find some evidence for a negative relationship in the long run (40 year horizon), though this is not significant and does not survive instrumentation. We find some evidence of a positive relationship for the period 1980-2000, but only when outliers are included. We find virtually no evidence that aid works better in better policy or institutional or geographic environments, or that certain kinds of aid work better than others.

br> So much for the contention that foreign aid will work if only the World Bank can reduce corruption in borrowing states. Wolfowitz is not alone, of course, in believing in the triumph of hope over experience when it comes to development assistance. But his expectation that finally, after nearly six decades, foreign aid will "work" is no better grounded in reality than, well, his expectation that Iraqis would welcome an American occupation.

Actually, the fact that more developing states are reforming both their economic and political systems argues for cutting, not increasing, foreign aid. Explains Ian Vasquez of the Cato Institute: "Good policies will reap the rewards of growth. 'Overrewarding' those countries with foreign aid, by contrast, may have effects similar to those of traditional foreign aid programs: slowing the pace of reform and development."

Paul Wolfowitz never should have been appointed Bank president. His dramatic self-immolation provides a convenient opportunity for the institution to start anew.

topics:
Trade, Economics, Environment, Iraq, Africa