Does Foreign Aid Work?

Foreign aid ranges from emergency relief to long-term loans and grants for health, schools and infrastructure. The Marshall Plan's success in rebuilding Western Europe inspired hopes that aid could transform poor countries, and in 1970 the UN set a target for rich countries to give 0. 7 percent of national income, a goal most donors have not met. Evidence is mixed. Some aid has clear achievements: vaccination campaigns helped eradicate smallpox, and programs against malaria and HIV have saved millions of lives.

Economist Jeffrey Sachs argued that much larger aid could end extreme poverty; William Easterly and Dambisa Moyo countered that aid often fails, props up bad governments and weakens accountability. A newer approach, championed by Abhijit Banerjee, Esther Duflo and Michael Kremer, uses randomized controlled trials to test which specific programs work. Most economists now agree the question is not whether aid works in general, but which aid, in which conditions.