NCPA - National Center for Policy Analysis

Developmental Aid Hurts Africans

April 14, 2004

The rationale behind development aid seems simple enough: funds will help poor countries buy food, clothing and infrastructure to heighten quality of life. Perhaps more technically, many have argued that aid helps nations recover from market failures and to fill the gap between investments needs and low rates of domestic savings.

Though well intentioned, data from the World Banks shows there is no relationship between aid transfers and economic growth - in fact, development aid has had quite the opposite effect. According to Richard Tren, Director of the research organization Africa Fighting Malaria, such government transfers have and continue to do untold damage to African economies:

  • When investment in a country in financed by aid it becomes a state asset, thus increasing the size of public sector and government consumption - two things that directly undermine wealth creation.
  • Aid hampers behavioral change: there is no incentive for nations to change bad policies when they can continue to finance themselves through aid transfers.
  • Bureaucrats are least responsive to the needs of their citizens when they can rely on foreign aid agencies to pay their salaries, thus producing corruption and abuses of human rights.
  • Rich countries have shown little effectiveness in getting development aid directly to those in need.

It is abundantly clear what makes countries rich and what makes them poor, adds Tren. The more an economy is planned and the less economic freedom individuals have, the lower the economic growth and the greater the level of poverty. And the converse is also true. Yet, many decades of development aid to Africa have ensured that governments have grown and economic freedom has diminished.

Ultimately, says Tren, the politicization of aid has propped up some of the most venal, vicious, and corrupt governments in Africa. If rich nations want to help poor countries, then the best thing for them to do is to restrain aid, push for lower trade barriers, and assist them in liberalizing their economies -- the very things that made countries rich in the first place.

Source: Richard Tren, "Aiding and Abetting Poverty," Tech Central Station, February 26, 2004.

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