Three new notes on the Market for Aid

13th June, 2005

The series on The Market for Aid continues (you can buy the book here). The last three notes in the series are:

Aid and the Resource Curse: How Can Aid Be Designed to Preserve Institutions?
Many studies have found that countries with abundant natural resources grow more slowly than those without—a phenomenon often known as the “resource curse” or the “curse of oil.” Some development specialists are concerned that foreign aid may also cause a resource curse. Recent research is not conclusive, but certainly does not rule out the possibility. This Note suggests ways to avoid this risk and urges more attention be devoted to it.

Aid Effectiveness: Can Aid Agencies Be Smarter Than the Invisible Hand?
Private financial flows such as foreign direct investment seem to encourage economic growth and relieve poverty in part because they create excellent incentives for transferring know-how and in part because they are subject to a stern market test that ensures they are allocated and monitored carefully. For aid flows, not automatically subject to these disciplines, it is difficult to be as effective. This Note argues that aid agencies, by learning what makes private flows so effective, can bring better aid to the poorest.

The Market for Aid: Understanding Aid by Looking Forward and Looking Back
The market for aid is changing. These days donors use a far greater array of instruments than in the past, and operate in a context of far larger private financial flows. Poor countries are growing richer, but there are legitimate doubts about whether the aid industry deserves credit. Measurement of the effectiveness of aid has not yet produced some of the results that would really help, such as credible ratings of aid agencies or rigorous randomized trials of specific programs. This information might pull the aid debate away from minimizing the costs of aid competition and toward trying to maximize the benefits: widespread experimentation and innovation.

All three notes are written by Tim Harford and Michael Klein.

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