Media Blog

Where Your Foreign Aid Dollars Go

Very interesting and accessible paper in the Journal of Economic Perspectives, via Chris Blattman’s blog:

We calculated the share of total aid going to countries classified by Freedom House as “unfree” as well as “unfree  part free.” Unfree countries have retained about a third of aid, while around 80 percent of aid goes to countries either partly free or unfree. These proportions have not changed much over time, despite democratization throughout the world and much donor rhetoric about promoting democracy. The only substantial movement can be found in the early 1990s, when the share going to unfree countries first dropped to about 20 percent, then increased to almost 50 percent, and then slowly fell back to its historic level of about 30 percent. This pattern occurs because countries essentially hand out aid to the same countries year after year, but the countries themselves have shifted their status from unfree to free and back to unfree. To put it another way, donor agencies appear to be unresponsive to political changes in recipient countries. Only in the last couple of years before 2004 is there a change in the share going to unfree countries that is explained by a change in donor behavior—and this change is in the wrong direction.  

 

For a .pdf of the whole thing, scroll down to “Where does the money go?” here.

 

The paper offers evidence to support the longstanding belief that pouring aid money into corrupt autocracies, no matter how well-intended we are, doesn’t help the poor and probably hurts them. And while we may talk a good game about corruption, donors do almost nothing about it:

The share of aid going to corrupt countries has fluctuated, but there was an upsurge in the late 1990s and early 2000s, just when it became acceptable for donors to explicitly condemn corruption. When we examined this pattern more closely, we again found that donors do not seem to react to changes in the level of corruption, but simply continue giving to the same countries.

And, as any informed charitable giver knows, it pays to keep an eye on administrative costs vs. aid payouts:

There is tremendous variation across agencies, with the UN agencies typically having the highest ratios of operating costs to aid by a large margin. UNDP is the worst, spending much more on its administrative budget than it gives in aid.

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