Foreign Aid Spells an Unhappy Christmas for World's Poor

Embargoed for 00.01 hours, 19th December. "There are serious difficulties with the current approach to helping less developed countries", said Dr. Razeen Sally of the LSE, the editor of a multi-authored study out today from the iea.

"There are serious difficulties with the current approach to helping less developed countries", said Dr. Razeen Sally of the LSE, the editor of a multi-authored study out today from the iea.

Swedish Economist Fredrik Erixon cites an exhaustive study that finds only one country out of 138 where there is a positive relationship between economic growth and aid. The authors suggest that the notion that government-to-government foreign aid can assist poor countries is intellectually bankrupt.

"It is a striking fact", said Erixon, "that it is only in the last 15 years when global foreign aid has actually fallen, that the number of poor people in the world has actually started to decrease."

Indeed, even aid tied to reform is likely to diminish economic growth. Foreign aid tends to increase the power of corrupt public sectors when entrepreneurship is the key to economic growth. Tied aid does not work. Reforms are rarely delivered as countries backtrack and monitoring and supervision of results is ineffective.

Professor Deepak Lal, Development Economist, from the University of California, Los Angeles, suggests that empires have often been important in providing a global economic order and economic stability. He says that the USA could play that role today. It would be wrong for the USA to pursue an isolationist policy or work through multinational institutions.

"Instead it should work to maintain and promote global peace, protection of international property rights and global trade", he said. "There is no competitor to the USA in this role so it must respond, ignoring the EU's attempts to tie it down. The most urgent and important task for the USA is to encourage modernisation, trade and development in the Islamic world, whilst not giving the impression of undermining the religious and moral foundations of those societies" he added.

US economist Daniel Griswold calls for a liberal immigration policy. "It is a striking fact", he argues, "that at the beginning of the 20th century 10% of the world's population lived outside the country of their birth whereas today only 3% do so. Migration, far from sapping the human capital of poor countries, leads to the development of channels through which money, ideas and capital flows back. Multinational trade negotiations, including those organised by the WTO should include, proposals to encourage the free mobility of labour. Developed countries should reduce barriers to immigration and developing countries reduce barriers to emigration."

Ends

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