by James Smith

Created on: June 29, 2007

Is Foreign Aid the Solution To Global Poverty?

Foreign aid was invented in 1948 with President Truman's Four Point Program. In almost six decades , some 2.3 trillion dollars have been given worldwide in aid to poor countries by rich ones . U.S. aid comes in the form of various project grants and loans. Since the second World War , the United States has contributed more than one trillion dollars in assistance to various countries. Unfortunately, studies have shown that in that time not a single country has significantly reduced poverty as a result of foreign aid.

Here are some brief quotes from various studies concerning foreign aid and poverty:

In 1993, a task force for the Clinton administration reported that " despite decades of foreign assistance, most of Africa and parts of Latin America, Asia and the Middle East are economically worse off today than they were twenty years ago."
Studies by Peter Boone of the London School of Economics and the Center of Economic Performance in 1994 reviewed the experience of one hundred nations. The studies concluded that " Long term aid is not a means to create growth." He found no evidence "that aid transfers will allow countries to escape from a poverty trap."
The United Nations Development Programme called the 1980's the "Lost decade" for many poorer states. Over this period (it reported in 1996) , economic decline or stagnation has affected one hundred countries reducing the incomes of one quarter of the worlds population.

If we review U. S. foreign aid over the last decade, there is no relationship between the amount of foreign aid and a reduction in poverty. In Egypt, extreme poverty as a percentage of the population has remained the same despite the money given to that country. Egypt is the second largest beneficiary of U.S. foreign aid. Bolivia, one of the eleven largest beneficiaries of U.S. foreign aid has managed to double the percentage of its people living in extreme poverty.

So why isn't foreign aid the solution to poverty? It really comes down to two reasons:

1. Aid is misallocated - Donors give aid for strategic reasons to the wrong recipients.
2. Aid is misused - Recipient governments pursue a non-development agenda.

History shows that sound domestic policies not foreign aid are what generate economic growth. This is how Europe escaped poverty, with markets that were allowed to operate freely, protected private property and the rule of law and permitted economic competition. This process is now happening rapidly in East Asia.

Foreign Aid is not the solution to global poverty. It does not generate economic growth. To make a difference in the reduction of global poverty, the U.S and other developed countries should allow poorer nations to participate more fully in the International Marketplace. Currently, one third of the exports from developing nations are subjected to trade barriers by wealthier nations . The elimination of these commercial barriers could well provide the economic stimulus necessary for poorer countries to reduce poverty. This is a much more practical solution than Foreign aid.

Sources:
"Millennium Flop" 9/16/2005 Independent Institute Alvaro Llosa
"Foreign Aid does not prevent social breakdown" 3/1998 , USA Today , Doug Bandow,
1998 Society for the Advancement of Education, 2000 Gale Group

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