The main argument in favor of foreign aid is that rich countries can and should help poor countries become more prosperous. And plenty of politicians are following that approach. According to the latest data from the Organization for Economic Cooperation and Development, donor governments gave away more than $220 billion last year. But advocates of foreign aid say that’s not enough. The folks at the United Nations assert that rich countries should double their foreign aid budgets.
Skeptics of aid have a different perspective. They explain that foreign aid is not successful and that increasing aid budgets would be throwing good money after bad. They argue that foreign aid is wrong in theory since it focuses on giving money to governments rather than the pro-market policy reforms that would boost growth. And they argue that foreign aid has failed the real-world test since countries receiving large transfers have not climbed out of poverty.
For those who care about evidence, the skeptics have a stronger argument. Not only is there no evidence that foreign aid has ever turned a poor country into a rich country; it is much more likely that foreign aid undermines economic development by giving politicians in recipient nations an excuse to delay or avoid needed reforms. For instance, the latest report from the United Nations’ Economic and Social Council shows that developing nations are regressing rather than progressing in meeting development goals.
The World Bank has a comprehensive database showing how much foreign aid various jurisdictions have received since 1960. It shows that poor nations have received $4 trillion over the past six-plus decades, a staggering sum of money. If government-to-government transfers were good for prosperity, the nations that have received the most aid should show very strong results. Yet those countries are still mired in poverty. Politicians in recipient nations have become rich, but the people have remained poor.
Incidentally, the US Agency for International Development claims that South Korea and Taiwan show that foreign aid can be successful. Yet a report from the Cato Institute noted that “those countries began to take off economically only after massive US aid was cut off.”