Nancy Qian has an excellent review paper on foreign aid called Making Progress on Foreign Aid.* There are a lot of interesting findings in this paper, and it’s definitely worth reading in its entirety, although I disagree a bit with the optimism of the title.
Here are some of the most interesting results in my opinion:
“The literature shows that the primary purpose of aid is often not to alleviate poverty and that out of all of the foreign aid flows, only 1.69% to 5.25% are given to the poorest twenty percent of countries in any given year.” I knew the percentage was low but I didn’t expect it to be this low. Important to keep in mind if you’re trying to make any sweeping generalizations about extreme poverty and aid.
Speaking of which, it is almost impossible to draw meaningful conclusions about the effectiveness of aid because it varies so much across donors, recipients, and across time. As Qian writes, “The aggregation also makes it very difficult to develop credible identification strategies for establishing causality. It is then not surprising that many studies of the aggregate effect of aid on aggregate outcomes have been shown to be highly sensitive to sampling, measurement and empirical strategies.” So Bill Easterly and Jeff Sachs could probably use the same data and find totally different results about aid effectiveness. It’s hard to see any resolution in the near future. I predict even more cycling in the literature on this topic.
*Qian N. 2014. Making Progress on Foreign Aid. Annu. Rev. Econ. 3: Submitted. Doi:10.1146/annurev-economics-080614-115553)