Why Give Aid (original) (raw)

Revue d’économie du développement, 2005

Abstract

In recent years the policy debate on development aid has focused on aid’s effectiveness. There has been relatively little discussion of the justification for aid and its advantages over other rich country policies that may help developing countries. Implicitly, effectiveness is considered as not only a necessary but also a sufficient justification for aid. In this paper we argue that the traditional justification for aid (the inability of poor countries to borrow in international markets) has lost much of its relevance. The paper suggests that there is a new case for aid in four areas. The justification is based on (a) asymmetric information in the policy environment in developing countries (b) the cost of taxation in recipient countries (c) the incentive effects of credible donor commitment to selectivity (d) the need for international public goods in the areas of conflict and risk. Ironically, while in these areas there is a convincing case for aid, donors appear to have a preference for using aid in situations where there is no strong case for it.

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