Making Foreign Aid Work

Abstract

Foreign aid is facing difficult times. Even some aid practitioners have called its effectiveness into question. While aid has had success in humanitarian relief, family planning, and reducing infant mortality, its record in promoting economic growth has been mixed. Economic growth is not the sole objective of U.S. foreign aid, and it may be the least important goal for policymakers concerned with security, short term solvency, human rights, or democracy. But the effects of aid on growth can be measured empirically, and growth is a necessary condi tion for meeting most of the broad objectives of aid. While aid has succeeded in promoting growth in some countries, in many others it has failed or even been counterproductive. A number of countries, many in sub-Saharan Africa, are poorer than when they began receiving aid several decades ago. Donors have often subsidized unsound economic policies. In such situations, foreign aid has perpet uated poor policies and weak economic performance. The solution is not to end or even reduce aid flows, but for donors to allocate resources more selectively. In the 1960s and 1970s, aid was driven primarily by the security con cerns of the Cold War, with an underlying focus on reducing poverty. During the debt crisis of the 1980s, the rationale for aid shifted to