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Who Should Be Given More Foreign Aid?

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  • Wenli Cheng
  • Dingsheng Zhang

Abstract

. This paper presents a simple model to investigate the effectiveness of foreign aid. It shows that foreign aid is most effective if it is given to a market economy with relatively high transaction efficiency. If transaction efficiency in a market economy is low due to, for instance, bad institutions or policies, then foreign aid will either be largely dissipated as transaction costs or can even lead to retrogression of market activities. In either case, it will be more effective to give foreign aid to poor primitive economies with no developed markets.

Suggested Citation

  • Wenli Cheng & Dingsheng Zhang, 2008. "Who Should Be Given More Foreign Aid?," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 641-648, December.
    • Handle: RePEc:bla:pacecr:v:13:y:2008:i:5:p:641-648
    DOI: 10.1111/j.1468-0106.2008.00423.x
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    References listed on IDEAS

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    1. Mei Wen & Stephen P. King, 2006. "Push Or Pull? The Relationship Between Development, Trade And Primary Resource Endowment," World Scientific Book Chapters, in: Christis Tombazos & Xiaokai Yang (ed.), Inframarginal Contributions To Development Economics, chapter 20, pages 497-529, World Scientific Publishing Co. Pte. Ltd..
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    7. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    8. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
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