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Another Look at Foreign Aid

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  • Ranis, Gustav

Abstract

The discussion of the effectiveness of foreign aid has reached a high pitch. This paper assesses the sorry past and present key arguments for a potentially more effective and sustainable method of aid delivery. A key ingredient is to shake off the vestiges of structural adjustment and move towards true recipient country ownership complete with “self-conditionality” with aid recipients formulating their own reform packages. This means donors become much more passive, act like a bank and respond to proposals which concentrate on a few critical areas over a three to five-year period. Policy-based program lending should respond to packages put together by the main domestic stakeholders with the help, if necessary, of independent third parties. There should be no compulsion to lend; indeed, an aid hiatus is an indication that the new system is effective. What is required is for donors to stop using aid as a short-term foreign policy tool and for recipients to accept the notion that aid provides the opportunity to reduce the inevitable adjustment pains caused by real reforms.

Suggested Citation

  • Ranis, Gustav, 2012. "Another Look at Foreign Aid," Center Discussion Papers 133408, Yale University, Economic Growth Center.
    • Handle: RePEc:ags:yaleeg:133408
    DOI: 10.22004/ag.econ.133408
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    References listed on IDEAS

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    1. Pablo Selaya & Rainer Thiele, 2012. "The Impact Of Aid On Bureaucratic Quality: Does The Mode Of Delivery Matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(3), pages 379-386, April.
    2. David B. Skarbek and Peter T. Leeson, 2009. "What Can Aid Do?," Cato Journal, Cato Journal, Cato Institute, vol. 29(3), pages 391-397, Fall.
    3. Ravi Kanbur & Matti Tuomala, 2006. "Incentives, Inequality and the Allocation of Aid When Conditionality Doesn’t Work: An Optimal Nonlinear Taxation Approach," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Alain Janvry & Ravi Kanbur (ed.), Poverty, Inequality and Development, chapter 0, pages 331-351, Springer.
    4. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    5. Gustav Ranis & Frances Stewart, 2001. "The Debt-Relief Initiative for Poor Countries," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(3), pages 111-124, July.
    6. Alain Janvry & Ravi Kanbur (ed.), 2006. "Poverty, Inequality and Development," Economic Studies in Inequality, Social Exclusion, and Well-Being, Springer, number 978-0-387-29748-4, July.
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