Essential reading on foreign aid

One of my favorite economists, Nancy Qian, reviews the literature on foreign aid. This is probably one of the better and more serious reviews out there, and should be read.

  • Aid flows have remained relatively constant during the period of 1960-2013
  • The countries that comprise the top donors also remain mostly unchanged
  • The composition of the top foreign aid recipients changes significantly over time [and] …much of the change in recipient composition seems aligned with foreign policy concerns of donor countries rather than changes in poverty levels in the recipient countries.
  • Annual aid to the poorest twenty percent of countries of the world comprise only 1.69% to 5.25% of total global aid flows.
  • A significant portion of aid is spent in donor countries.

Also, she picks up on the silliness of asking the question “does aid work?”

I focus my discussion on the need for future research to shift away from
examining aggregate aid towards more narrowed definitions because aggregation exacerbates several fundamental difficulties of empirical research. First, aggregate ODA is difficult to interpret as it is comprised of many different types of aid (e.g., debt relief, cash transfers, food, etc.). Each type of aid faces different measurement issues and, more importantly, each affects a different set of outcomes.

That is, it depends what you mean by “aid” and what you mean by “work”. It might even depend on what you mean by “does”.