Aid Debate

One of the topics "near the end of the book" for many economics classes is economic development. This is unfortunate because students frequently ask about the efficacy of giving aid to other nations in order to help them develop - particularly if they see unmet needs in the U.S.

One of the standard responses has always been that U.S. aid to foreign nations is a small part of the federal budget, especially compared to other items. This is true, but doesn't address their point regarding opportunity cost. The issue can also cover charitable aid from private sources. Here, the usual response there is "people are free to give their money as they see fit." Both answers avoid the debate about the efficacy.

Foreign aid is, admittedly, a large and complex issue. But the popular media seems to be renewing interest in it, particularly as it relates to the continent of Africa. Much of that renewed interst is due to the work Dambisa Moyo and her book Dead Aid. A few of the "big names" in the profession have been involved in this issue for some time, but Moyo's work has sparked new interest, largely due to her background and experience.

If we can judge from this article on voxeu.org, William Easterly, author of The Elusive Quest for Growth and White Man's Burden shares Moyo's view.

This artice on voxeu.org would seem to put Jeffrey Sachs, author of End of Poverty and Common Wealth among those who disagree.

Both make strong arguments. I can see where aid without accountability can be wasted - particularly in an institutional setting where corruption may be sanctioned or, at the very least, accepted. But it is also hard to ignore that even simple resources (mosquito nets) can have a significant marginal impact in many of these nations.

There are other resources that you might want to examine if you choose to use this topic with your students. There is an interesting panel debate on National Public Radio with Easterly on one of the panels.

And there are five interviews on the topic of poverty and development at EconTalk. (Although a few of them don't necessarily restrict themselves to Africa.)

If you are trying to get students to think and look outside "their world", or if you just want students to see the value economic thinking can bring to solving real world problems, I encourage you to look at some these of resources. And if you know of others, please share your information here.

This post references the following Keystone Economic Principles:
4. Economic Systems Influence Choices.
7. Economic thinking is Marginal Thinking.
and
8. Quantity and Quality of available resources impact living standards