Can foreign aid work?

Jeff Sachs gives a one-page argument for "yes." 

I lean toward a more disaggregated approach, in which the success of aid is not just a matter of political will.  The question is when and where aid will work.  From another direction, this is an insightful paper:

Incumbent political leaders risk being deposed by challengers within existing political rules and by revolutionary threats.  I examine how the survival incentives created by these dual threats shape the e¤ects of aid on government policy.  I use Bueno de Mesquita et al’s (2003) selectorate politics theory to examine the relationship between winning coalition size — the number of supporters a leader requires to retain office — and policy choice.  In large winning coalition systems, the public goods focus of public policy means that foreign aid improves societal welfare and economic development.  In contrast, in small coalition systems the private rewards focus of policy induces a loyalty norm towards incumbents which enables leaders to skim off aid resources for themselves and their cronies.  Further since in small coalition systems aid generates few of the societal benefits that it would under large coalition institutions, aid increases the desire of citizens to rebel.  Leaders can respond to such revolutionary threats by either buying off potential rebels by increasing the supply of public goods or retarding their ability to organize by suppressing public goods.  Aid increases the relative attractiveness of the latter option because aid provides governments with "unearned" revenues that are relatively isolated from the economic decline induced by the suppression of public goods.  The model also implies that aid can retard democratization.

I read that and I thought "today I learned something."  Both pointers are from

Addendum: Here is more Sachs, via Mankiw.


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