…it’s a myth that aid is doomed to failure. Foreign aid funded the campaign to eradicate smallpox, and in the sixties it brought the Green Revolution in agriculture to countries like India and Pakistan, lifting living standards and life expectancies for hundreds of millions of people. As for the Asian nations that Africa is being told to emulate, they may have pulled themselves up by their bootstraps, but at least they were provided with boots. In the postwar years, South Korea and Taiwan had the good fortune to become, effectively, client states of the U.S. South Korea received huge infusions of aid, with which it rebuilt its economy after the Korean War. Between 1946 and 1978, in fact, South Korea received nearly as much U.S. aid as the whole of Africa. Meanwhile, the billions that Taiwan got allowed it to fund a vast land-reform program and to eradicate malaria. And the U.S. gave the Asian Tigers more than money; it provided technical assistance and some military defense, and it offered preferential access to American markets.
Coincidence? Perhaps. But the two Middle Eastern countries that have shown relatively steady and substantial economic growth–Israel and Turkey–have also received tens of billions of dollars in U.S. aid. The few sub-Saharan African countries that have enjoyed any economic success at all of late–including Botswana, Mozambique, and Uganda–have been major aid recipients, as has Costa Rica, which has the best economy in Central America. Ireland (which is often called the Celtic Tiger), has enjoyed sizable subsidies from the European Union. China was the World Bank’s largest borrower for much of the past decade.
Read more here. The quality of this debate has improved markedly in the last ten years. I’ll predict that most MR readers are skeptical about foreign aid, but I still regard this as an open question. The key question is whether the above favorable conditions can be replicated by policy or foreign aid formula.