Do Aid Studies Govern Policies or Reflect Them?

When President Bush promised to channel billions of dollars in aid — but only to countries that were committed to “ruling justly, investing in their people and encouraging economic freedom” — it was an extraordinary example of how an idea hatched by scholars could wend its way into mainstream politics. The plan, which Mr. Bush announced as the Millennium Challenge Account at the 2002 United Nations International Conference on Financing for Development in Monterrey, Mexico, was largely based on the work of two economists, Craig Burnside and David Dollar. After completing an elaborate statistical analysis, they concluded that yes, foreign aid did promote economic growth, as long as the recipient government had solid fiscal, monetary and trade policies in place; their article, “Aid, Policies and Growth,” was published in The American Economic Review in 2000. But new research that uses the same methodology, though more up-to-date and comprehensive data, says those findings don’t hold up. “We no longer find that aid promotes growth in good policy environments,” write three researchers: William Easterly, a former principal economist at the World Bank who is now an economics professor at New York University; Ross Levine, a finance professor at the University of Minnesota; and David Roodman, a research associate at the Center for Global Development in Washington. Full Story