West should be cautious with foreign aid

The developed world should be wary about how much it spends on foreign aid and where it goes, says economist Jagdish Bhagwati, a senior fellow at the Council on Foreign Relations.

Proponents for foreign aid believe that member nations of the Organisation for Economic Co-operation and Development (OECD) should each donate 0.7 percent of national income in assistance, the bulk of which to be spent in Africa. But Bhagwati says the economies of Africa may lack the required “absorptive capacity” for these aid flows, potentially producing more harm than good:

Expanded aid could result primarily in waste and corruption; for example, this phenomenon has occurred when a country enjoys a sudden increase in wealth arising from newfound oil deposits, called the ‘oil curse’.

If funds could be spent for Africa -- and not just in Africa -- there would be greater opportunities to put aid to productive use.

There are many ways to help Africa abroad, says Bhagwati. For instance, developing cures for yellow fever and malaria and removing U.S. subsidies that undermine exports of African nations would be a good start.

Source: Jagdish Bhagwati, “A Chance to Lift the Aid Curse,” Wall Street Journal, March 22, 2005.

For text (subscription required):
http://online.wsj.com/article/0,,SB111145743215185945-search,00.html

For more on Foreign Aid:
http://www.ncpa.org/pd/budget/budget.htm

FMF Policy Bulletin/ 12 April 2005