Monday, March 23, 2009

Economics and Foreign Aid

There was a very interesting article from the Saturday, March 21 edition of The Wall Street Journal about Why Foreign Aid is Hurting Africa (content is currently free). It is a longer piece, but it speaks to the importance of institutions and politics. There are also a number of related podcasts from EconTalk: Easterly on Growth, Collier on the Bottom Billion, and Barro on Growth. You may not want to assign these, but you could play portions of the podcasts as part of a classroom discussion. You may also want to listen to each of the interviews in their entirety as they cover a wider array of topics than just foreign aid.

There is also this interesting discussion between Gary Becker and Richard Posner from their blog. And I was trying to cast a wider net, I ran across this older article from the Yale Global Online Magazine that, in part, voices the same concerns.

All of them seem to come to the conclusion that the answer is not in throwing money at less developed countries, but in helping those countries develop institutions to combat various failures within their current systems. At least that's what I see as a common thread. The downside is that changing institutions (rules) takes time. Not that a law can’t be rewritten and passed quickly, but that it takes time for the changes to become part of the internalized structure of decision-making.

Another component that I see frequently is the need for some kind of oversight and accountability, not just within the countries but within the organizations providing the aid.
There’s a lot of information here, so you can pick and choose. But when the topic turns to foreign aid, these resources can provide an economic view of the issue. I would also welcome any suggestions for other articles or sources on the topic. And I welcome your comments.

This post relates to the following Keystone Economic Principles:

1. We all make choices.
4. Economic systems influence choices.
5. Incentives produce “predictable” responses.

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