In an op-ed piece in today’s Wall Street Journal (subscription required), economist Arvind Subramanian questions the wisdom of providing foreign aid to poor countries.
In a piece titled Farewell to Alms (borrowing from Hemingway’s famous Farewell to Arms), Subramanian, a senior Fellow at the Washington DC think tankÂ Center for Global Development argues that foreign aid damages governance and makes the receiving economy uncompetitive.
Subramanian seeks to debunk the Burnside-Dollar thesis that foreign aid works best when accompanied by good policies and effective local institutions. He argues in the WSJ piece that:
[A]s researchers pored over the data, it became increasingly difficult to maintain that there was any systematic relationship between aid and long-run economic growth.
Citing his research with Raghuram Rajan, Subramanian argues that in countries getting foreign aid, the export industries underperformed.
In Subramanian’s view, providing foreign aid distracts from alternatives that could have a bigger impact.
Giving aid is like looking for the lost key under the lamppost because that is the easiest thing to do. But it is not obviously the most effective way that outsiders can help.