Foreign aid is a contentious topic. The key disagreements run between those who think that industrialized countries should devote even more resources to foreign aid and those who see aid in a form of official development assistance (ODA) as, on balance, harmful to developing countries. Does foreign aid work? Dr. Boris Begović, President of the Center for Liberal-Democratic Studies in Serbia, takes on this very important question in his CIPE Development Institute presentation (free registration required).
The conclusion reached by Dr. Begović and most analysts is that aid works far less effectively than private investments and it often undermines good governance and development prospects due to significant institutional side effects. But if aid does not spur development, then what does? The alternative is good economic policies. Donors must recognize that their contribution to development should be helping countries create and foster sound market and governance institutions. And the recipient countries should capitalize on the opportunities for market-led growth. Dr. Begović puts it well:
- “Aid leads to growth only with good economic policies. It is economic policies that matter. If economic policies are good, then there will be growth, no matter whether there will be aid or no aid.”
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