University of Botswana Law Journal - PULP

10 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2010
recipient countries’ policies. An influential paper by Burnside and Dollar has
provoked a new debate about the effectiveness of aid. 31 It claims that while aid
has not caused a systematic improvement in living standards, it has promoted
economic growth when given to countries with good policies and governance.
These findings are overly optimistic, however, and have been hotly disputed. 32
In the first place, it is difficult to define a standard of good policies
and then stick to this standard by withholding money from countries that don’t
meet it. In the past corrupt governments have not received less aid, 33 and this
is unlikely to change because it is not seen to be in the interest of donors or
recipients. Donors do not want to withhold aid money from poor countries, so
the standards for disbursement are likely to be ineffectively weak or simply
ignored. Recent history confirms this conclusion. Despite the new rhetoric of
selectivity, not much has been done to promote real reform or greater
accountability. The attempts by donors to influence the policies of recipient
countries have been half-hearted and ineffective. African leaders accept
reform reluctantly, if at all, and trying to impose institutions from the outside
in by tying aid to political performance engenders resentment and hostility
amongst its recipients. For these reasons foreign aid is unlikely to be given
selectively.
More importantly, even if foreign aid were selectively given, it
would still undermine the good policies it was meant to promote because of
the perverse incentive structure inherent in foreign aid. For the reasons
already stated above, foreign aid causes corruption, privilege seeking, and
crony statism. These effects are counterproductive for countries attempting to
implement good policies and develop the institutions necessary for economic
growth and development. The attempts to fix foreign aid are self-defeating
and will not work in practice.
3. THE RULE OF LAW AS AN ALTERNATIVE TO
FOREIGN AID
Rising out of poverty depends in the long run on economic growth. Since
foreign aid has not contributed much toward economic growth, and is not likely
to do so for the reasons explained above, it is necessary to consider the
31 C. Burnside & D. Dollar, Aid, Policies, and Growth, 90 American Economic Review 847 (2000). Other
key papers in the “new economics of foreign aid” include: P. Collier & D. Dollar, Aid Allocation and
Poverty Reduction, 46 European Economic Review (2002); P. Collier & D. Dollar, Development
Effectiveness: What Have We Learnt?, 114 Economic Journal F244 (2004).
32 Two papers that argue against the findings of Burnside and Dollar are W. Easterly, The Cartel of Good
Intentions: The Problem of Bureaucracy in Foreign Aid, 5 The Journal of Policy Reform 223 (2002); and
I. Vasquez, The New Approach to Foreign Aid: Is the Enthusiasm Warranted?, Cato Institute Foreign
Policy Briefing No. 79 (2003). In addition, several recent studies have found that aid is detrimental to
growth even for countries with good policies. See H. J. Brumm, Aid, Policies, and Growth: Bauer was
Right, 23 Cato Journal 167 (2003); W. Easterly et al., Aid, Policies, and Growth: Comment, 94 American
Economic Review 774 (2004).
33 A. Alesina & B. Weder, note 30 above.