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Evaluating Country Programmes
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economic models. Alternative models come to wildly varied, but equally defensible,
conclusions about the effects of foreign aid. Thus, USAID’s Center for Development
Information and Evaluation avoided this approach.
The second approach is also flawed, since all countries differ from one another
in myriad ways, any one of which might be responsible for performance differences.
Nevertheless, this approach provides at least an approximation of performance.
For example, all Central American countries share important similarities in economic
structure, location, history and culture. Each country could reasonably be
expected to have similar economic performance. Any country deviating significantly
from the regional average in economic performance can be assumed to follow
significantly better or worse policies.
But use of Central American averages as a basis for judging the impact of
USAID on Costa Rica suffers from the problem that USAID also gave substantial
aid to all countries in the region during the 1980s, except to Nicaragua. Each
USAID-supported country in Central America outperformed Nicaragua by a wide
margin on virtually all indicators of sustainable development. Nevertheless, this
test is too easy. Most economists, including many sympathetic to socialism, consider
Nicaragua’s policy set during the 1980s to have been quite poor. Moreover,
Nicaragua suffered from the active hostility of the United States.
Because comparison with Central American neighbours is not feasible, the next
closest approximation is with Latin America as a whole, despite the greater diversity
of country conditions there, including size. Most of Latin America followed relatively
similar policies during the 1960s and 1970s, emphasising import
substitution and building large public sectors. All suffered severely from the debt
crisis and collapse of commodity prices in the early 1980s, and nearly all eventually
moved to the kinds of policy regimes espoused by USAID in Central America:
greater openness to international trade, financial liberalisation, an appropriate
exchange rate for the currency, and cutbacks in the public sector, including privatisation
of government enterprises.
Accepting that it may be useful to compare Costa Rican performance with the
rest of Latin America, the next question is how to do so. The most widely accepted
measure of overall performance is growth of GDP. This is an attempt to measure all
economic activity – activity undertaken for market purposes – in a given year. GDP
growth is difficult to measure under the best of circumstances, and more so in countries
undergoing major structural change. GDP for any particular year is also affected
by temporary external events, such as world price fluctuations for major exports.
Moreover, it is desirable to measure steady-state, or sustainable, GDP. But many
countries, like most of Latin America during the late 1970s, may have achieved artificially
high GDP levels by mortgaging their future. Thus, the nominal GDP figure for
a given year may not be a proper representation. Nevertheless, it is the best single
measure available.
OECD 1999