New in the Cato Journal: Does Foreign Aid Help?
by The Editors
April 17th, 2006
If you’re interested in this issue of Cato Unbound, you’ll certainly want to read the lead article in the newly released edition of the Cato Journal: “Does Foreign Aid Help?” [pdf] “In this article,” Simeon Djankov, Jose G. Montalvo, and Marta Reynal-Querol write,
we show that foreign aid has a negative impact on the democratic stance of developing countries, and on economic growth by reducing investment and increasing government consumption. Therefore, our empirical findings do not support the democratization effect of foreign aid nor the development effect. Because of these findings we propose and analyze other forms of helping poor countries. For example, the way in which aid is disbursed can also affect the effectiveness of aid. Maybe the mechanism to successfully encourage the government to invest rather than to consume has something to do with the way in which aid is disbursed. . . . Indeed, a debate has recently emerged as to whether donors should give grants or loans. . . . However, there is no empirical evidence that allocating aid in form of grants will improve economic development. We enter into the debate by considering the distinction between grants and loans, and we analyze their differential effect.
Be sure to check out the rest of the new issue of the Cato Journal, which features articles such as “Corruption and Human Development” [pdf], “Does Gun Control Reduce Crime or Does Crime Increase Gun Control?” [pdf], and “Coase, Demsetz, and the Unending Externality Debate” [pdf], as well as new reviews of Tim Harford’s The Undercover Economist and Benjamin Friedman’s The Moral Consequences of Economic Growth.
