Lord Kelvin said "If you can’t measure it, you can’t improve it." He’s right which is one reason the explosion in measurement in development economics and foreign aid is so important. Reagrding the latter the Millennium Challenge Corporation awards aid to countries that perform well on a set of variables such as political rights, civil liberties, the costs of starting a business, trade policy and other variables. It’s important that most of these variables are measured by outside organizations and not the countries getting the aid.
How well has the MCC worked? In a new paper Doug Johnson and Tristan Zajonc find that candidates for MCC aid improve their performance to a greater degree on more indicators than similar control countries. Johnson and Zajonc have a great graph which illustrates one of their research designs. The first panel is candidate and control countries before the MCC when we would not expect many differences, the second panel is the same countries after the MCC was put in place when we would expect the MCC to have an incentive effect on candidate but not control countries, the last panel subtracts the differences in the second panel from the differences in the first to arrive at the difference-in-difference estimate – most of the gains are positive and fairly large.
We do not yet have any evidence that improvement on the indicators will improve growth or reduce poverty but at least we are measuring, the first to step to improving.