NCPA - National Center for Policy Analysis

Foreign Aid Helps Donor Countries First

June 26, 1996

For years, foreign aid advocates tried to sell their programs to American taxpayers as a means of encouraging investment in poorer countries and raising the living standards there. But a number of recent studies confirm that the billions spent have failed to raise living standards in recipient countries, and even advocates now concede that the real goal is to boost our own economy.

  • More than 80 percent of U. S. foreign aid money is spent on American goods and services, according to the Business Alliance for International Economic Development.
  • Foreign aid has not raised investment in recipient countries, according to a study by Peter Boone of the London School of Economics -- but simply allowed governments and political elites to spend more on themselves.
  • Out of 66 countries that received aid from the World Bank for more than 25 years, fewer than half have a higher GDP per capita now than when they started getting aid according to the Heritage Foundation, and nearly as many are actually poorer.

A recent UNICEF study admits that just one-tenth of official development assistance goes to meet basic needs -- such as clean water and primary schools.

Critics say that after giving away about 0.35 percent of their combined output every year for the past two decades, developed countries are entitled to some answers.

In truth, economic assistance has only permitted some countries to avoid economic reforms that would lead to real growth. But for those countries that are freeing their economies, there are abundant opportunities to attract private investment. In 1994, developing countries received $45 billion in direct foreign investment. The countries that don't attract investment are those traditionally hostile to free markets and private investment.

An even better answer than foreign aid, critics contend, would be for rich countries to cut trade barriers that prevent imports of goods from poor countries. Lifting those restrictions, according to the Organization for Economic Cooperation and Development, would open opportunities worth twice as much as all foreign aid combined.

Source: Perspective, "Welfare for Consultants," Investor's Business Daily, June 26, 1996.


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