http://ksghome.harvard.edu/~drodrik/policy%20regressions.pdf

I much favor private investment and donation in contrast to forced aid and compulsory giving – this tends to not only be paternalistic, but helps to plant resentment between the transacting populations.

An aside, how much comparison work has been done looking at the parallels between foreign aid and domestic aid programs, like those designed to help urban poor?

My reply to James has bogged down in a large footnote on the disastrous impact of the Cold War on the aid program to the developing nations. Essentially the leadership had us over barrell so it was next to impossible to exert any control over the way the aid was used.

Do you also acknowledge that it took decades of wasted effort for those lessons to be learned? Bearing in mind that he was at work in the 1940s. Where would you place the date of the Washington consensus?

I am not a proponent of dependency theory, an opponent of globalisation, or a supporter of protectionsim (although there is there is a prima facie case that protection of infant industries worked in South Korea and Taiwan). Basically, I agree to the tenets of the Washington Consensus. So most of the above is misdirected if you think it contradicts anything I’ve argued. It wasn’t termed a consensus for nothing, and the fact that it is a consensus, makes your groan of ‘have they learned nothing?’ plain comical. On the other hand, there is nothing in the WC that stipulates against foreign aid to countries with appropriate institutional frameworks, or against the involvement of the governments of those countries. If you are really interested in the empirics of poverty, they are easy to find in the latest Human Development Report. There is also a chapter there on the benefits of trade, if you are interested in the state of ‘big government interventionist’ thinking on poverty, trade, and aid. The emphasis on poverty, by the way, refelects a general recognition of the role of human capital in development, and the obstacles to benefiting from gliobalisation without it. The very poor don’t make it to school, and that provides a very strong motive for both accelerated (i.e. interventionist) poverty allevation policies and public investment in education.

But I doubt you’ll look at the HDR. Rather, you’ll go on trawling the right-wing websites for some quotable quotes chockablock with verbal fireworks directed against straw socialists. In the meantime you might be lucky and more commenters will step forward with books that ‘refuted me before I even posted’. Good luck, by the way, with the critique of the econometrics – you’re outsourcing that one if I understand right. My prediction is that you will opt for attacking the motrives of World Bank researches (‘aid industry’ is a nice term from the Paddy McGuinness lexicon you could use). Before doing so, though, see Sen’s critique of ‘indirect arguments’ in the review of Bauer (the one on your website).

This is part of a plan for a book.
http://www.econ.ucla.edu/Lal/others/Proposal%20for%20poverty%20book.pdf

“Finally, the book will outline the reasons why numerous aid agencies including the World Bank and non-governmental organizations (NGOs) are still promoting the false impression (given the evidence) that despite the substantial economic growth that has taken place in the Third World since the 1980′s there has been no reduction in Third World poverty. Hence what is needed is even more foreign aid. It will be argued that ‘third world poverty’ has now become an industry by which many middle class professionals make a living. It will be shown that foreign aid has not succeeded in its aims of alleviating poverty. By providing predatory governments the means to maintain their dirigiste policies that damage the economic prospects of the poor, and with the dismal failure of ‘conditional’ aid in changing state behaviour, aid is no longer merely a palliative but harmful. It is time the whole ‘poverty’ enterprise is shut down by pensioning off the Lords of Poverty. The reluctant globalizers may then decide to integrate with the world economy which can – as the example of numerous countries in the Third World, amongst whom India and China are notable- lead to rapid intensive growth and the elimination of mass structural poverty within the life time of a generation.
Using historical data and evidence from around the third World, the book will thus deal with a number of continuing myths concerning world poverty. These include:
1. Globalization has increased rather than reduced world poverty
2. The West grew rich at the expense of the Rest
3. Economic growth does not ‘trickle down’ so direct measures like the Western welfare state are needed to tackle world poverty.
4. Without massive foreign aid the problems of the world’s poor will not be solved.”

James should direct his criticism at Lal, anyway, I will refer his piece to some people who are professionally engaged in the field in case he has made some point that is not covered in the existing literature.

Doles foreign aid boost economic growth? The research has produced divergent and confusing assessments. James Farrell has a very clear summary of the literature over on the Club Troppo blog in his post The Road to

Dont miss the postscript of Lal’s paper, he has a complimentary mention of some work by Pichford which he described as “the Australian response” to various policy issues.

I was a bit disappointed that Rafe didn’t bother to engage. Saying that these guys should be aware of measurement error and the problems inherent in separating correlation from causation is a bit like telling the rest of us that we should always remember to turn on our computers before browsing the Net.

Having been there and done some of that I can attest that doing regression analysis is just about as much fun as you can have with your clothes on, but still the problem is to work out what it all really means.

Anyone who has practiced this kind of analysis knows that the interpretation of the results is plagued by correlation between variables (collinearity) that renders the value of the coefficients highly conjectural. http://seamonkey.ed.asu.edu/~alex/computer/sas/collinear_VIF.html

That is on top of the other problems regarding quality of data and measurement of institutional variables by various proxies (for the level of corruption, for example).

This week I am on leave, trying to make progress with a paper for a refereed academic journal so I can’t afford to be distracted into a major blogging war. Nor do I want to cop out of this important debate, so I will aim to get back later in the day with a more lengthy reply.

The rest is mostly directed to Nicholas.

Re. ‘my’ econometrics, I’m not sure if looked at any of the surveys, but yes the message seems overwhelming. The paper by Addison et al. that I listed is good, but there’s another one by Mark McGillivray in the context of the Millenium Development Goals. After surveying dozens of recent panel studies, he concludes

Aid now appears to work in the sense that per capita economic growth would have been lower in its absence, according to the findings of this research. This is the clear, unambiguous finding of practically all empirical studies conducted over the last seven or eight years, one that marks a remarkable turnaround in the literature on aid effectiveness, which for decades provided rather inconclusive, often contradictory findings…The overall message from the empirical literature is thus reasonably clear: to the extent that growth is good for poverty reduction,it can reasonably be inferred that poverty would be higher in the absence of aid flows.

Against this

Easterly et al (2003) and Jensen and Paldham (2003) are the only papers, to the author’s knowledge, which do not support the hypothesis that aid and growth are positively associated. Note, though, that the former study was concerned with critiquing Burnside and Dollar’s econometric analysis, and not with the effects of aid per se.

On the topic of Easterly, since I quoted Sen on Bauer, I might as well quote Sen on The White Man’s Burden, since the message is very similar. From the begining:

…the empirical picture of the actual effects of international aid (which, incidentally, does not come only from white men, since Japan is a major participant in the effort) is far more complex than Easterly’s shotgun summary suggests.

And from the end:

There is much of merit in Easterly’s perceptive vision about initiatives, incentives, and communication. We should be grateful to Easterly for the wealth of material he has presented, thereby enriching the development literature. We may have less reason to celebrate — or even to accept — the diagnosis of idiocy and obduracy he gives to those whom he calls “planners.”

It’s important to stress that, although some of he studies point to aid working irrespective of the institutional framework, no one is saying that the latter should be overlooked, and indeed the point of much of the work is to identify the kinds of instutions that give projects the best chance. My message was intended to be, yes they have listened, but also, thank goodness, they haven’t been deterred. If it was ‘the right’ who forced ‘the left’ to target countries with better institutions,and develop better systems to measure and monitor projects, so be it. Thank God for the dialectic.

Finally, I’m not having any of this stuff about how aid only works ‘at the village level’ or with the ‘direct involvement of the beneficiaries’. Yes of course decentralisation is often appropriate for all the usual reasons. It’s terrific to install a pipe to carry water to this or that village, but that doesn’t mean no projects should be developed at the national level. I have no idea, for example, how you administer a nation-wide immunisation program or an overhaul of the teacher educatiuon curriculum ‘at the village level.’

NB: As far as I can see Sachs’ main problem is ‘ego error’. He seems to believe that he is smart enough to avoid the errors of the past and the errors not yet known. Whilst that is a tempting prospect for all of us at one time or another, there is a reason why political systems (to take an example) designed around fallibility and not infallibility seem much more durable than those designed the other way around.

While I’m very sympathetic to the view that you’re putting, (this isn’t some positioning statement – I agree with you on aid), I strongly disagree with the undertone that the view that aid is a waste is somehow something we must especially guard against spreading within the lazy minds of the populace. Large swathes of the populace will continue to believe strongly in aid – witness the live aid and live 8 pushes. And lots will be skeptical – and have a fair right to be skeptical given how many cockups and cover ups there have been.

Some on the right will continue on their lazy way using whatever comes to hand to say ‘I told you so’ going into their self referential worlds of distain for other views. But if we are to conduct the debate with slogans, I don’t think the hardness of heart in the right wing slogans are worse and more to be guarded against than the soft headedness of many of the left wing ones.

Whether one is a scientist or a progressive, one shouldn’t be afraid of the truth or even of a bit of exaggeration from one’s opponents. If some people argue it’s all money down the drain, and show a hundred projects to back up their view, that’s actually a useful corrective to what I think Easterly documents to devastating affect. I summarised his case here here as this – “that reporting by euphemism, priority setting by lowest common denominator and progress by forgetfulness are entrenched in the system.”

I recall a conversation I had with two prominent somewhat left of centre people for whom I have considerable respect and they said in a rather feckless way that it took the right to object to giving money to corrupt regimes. They thought that the left wouldn’t have done it – without the prodding of the right and they didn’t seem to think there was much wrong with that. I think there was.

And whatever your regressions say (unless they’re reasonably clear it’s OK), there’s a pretty good case for not giving aid to corrupt regimes, and being very circumspect about any aid in such countries not just because the chances of it doing good are heavily diminished, but because it threatens to discredit aid itself.

And I think that pro-aid attempts to hush up horror stories of aid are ultimately counterproductive. I well remember coming across Easterly and Sachs’ spat which I’ve already refered to, and it struck me the more I thought about it that Easterly got far the better of the argument because he was able to show how little Sachs referred to the literature on past failures in order to learn from them. Sachs reply as I recall was surprisingly ad hominem.

Rafe?

The initial prosperity of Europe was based on this and its continuing prosperity remains wedded to the same process.
Colonialism was the name of the game and it still is very much alive.
Of course we dont use that word anymore do we! Very politically incorrect!
Holland for instance imports over 90% of its supplies. Japan would probably be even worse. California is similar. Etc Etc Etc.
Extrapolating that: what if every country became “successful” via the same method?

Are there enough “elsewheres” to provide every country with 90% of its raw materials?

Of course this process of getting most of your raw materials from “elsewhere” inevitably means that most countries will inevitably be losers and the rich ones will continue to get richer as long as the system lasts.
Altogether it is a very tragic zero sum game.

Meanwhile global capitalism is rapidly grinding everything to rubble. Capitalism being in effect an extreme form of the war of all against all including the planetary eco-systems. See.

http://www.coteda.com/fundamentals/index.html