Foreign aid and economic progress

January 28, 2014

If you’d like to understand how poor countries can succeed, take a look at this op-ed by Daron Acemoglu and James Robinson. Highlights:

[H]uge aid flows appear to have done little to change the development trajectories of poor countries, particularly in Africa. Why? Poverty is created by economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbours and their country.

[Foreign aid success requires] using financial and diplomatic clout to help create room for inclusive institutions to grow.

In short: don’t throw money at poorly run countries, help them develop better political systems and ignore them if they don’t.

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