\makeatletter \let\ifGm@compatii\relax \makeatother \documentclass[12pt]{beamer} %use for presentation % \documentclass[12pt,handout]{beamer} %use for handouts \setbeameroption{show notes} %uncomment to see notes \usefonttheme{serif} \usefonttheme{structuresmallcapsserif} \newcommand{\its}{\vskip 10pt \item} \newcommand{\pits}{\vskip 10pt \pause \item} \newcommand{\st}{\operatorname{st}} \newcommand{\var}{\operatorname{var}} \newtheorem{prop}{Proposition} \newcommand{\R}{\mathbb{R}} \newcommand{\E}{\mathbb{E}} \newcommand{\AR}{\operatorname{AR}} %\newtheorem{theorem}{Theorem} \newcommand{\un}{\underline} \newcommand{\ov}{\overline} \newcommand{\gp}{\succ} \newcommand{\lp}{\prec} \newcommand{\gep}{\succsim} \newcommand{\lep}{\precsim} \newcommand{\T}{\ensuremath{\mbox{\footnotesize\textsc{occupation}}}} \renewcommand{\S}{\ensuremath{\mbox{\footnotesize\textsc{suicide}}}} %\newcommand{\R}{\ensuremath{\mbox{\footnotesize\textsc{religious}}}} \usepackage{graphicx} \usepackage{ragged2e} % ----------------------------------------- % Center the Frame Title % ----------------------------------------- \setbeamertemplate{frametitle} { \begin{centering} \vspace{0.1in} \insertframetitle \par \end{centering}} % ----------------------------------------- % Number the slides % ----------------------------------------- \setbeamertemplate{footline}[frame number] % ----------------------------------------- % Get rid of the irritating navigation bar % ----------------------------------------- \setbeamertemplate{navigation symbols}{} % ----------------------------------------- % Begin Document % ----------------------------------------- \title{Institutions and Foreign Aid} \author{} % Ethan Bueno de Mesquita\\ \small{Harris School of Public Policy Studies}\\ \small{University of Chicago}} \date[]% (optional, should be abbreviation of conference name) % Delete this, if you do not want the table of contents to pop up at % the beginning of each subsection: \AtBeginSection[] % { % \begin{frame}{Outline} % \tableofcontents[currentsection,currentsubsection] % \end{frame} % } % Delete this, if you do not want the table of contents to pop up at % the beginning of each subsection: % \AtBeginSubsection[] % { % \begin{frame}{Outline} % \tableofcontents[currentsection,currentsubsection] % \end{frame} % } \begin{document} \begin{frame} \titlepage \end{frame} \begin{frame}{3 Foreign Aid Challenges} Currently, foreign aid does little to foster economic development \ Western democracies give foreign aid to some pretty unsavory regimes \ Much foreign aid is expropriated by corrupt leaders, never reaching the target population \end{frame} \begin{frame} \begin{center} \begin{figure} \includegraphics[scale=.5]{figures/sachs.pdf} \end{figure} \end{center} \end{frame} \begin{frame}{Diagnosis: Poverty Traps} Poor countries cannot attract investment, due to lack of human capital and infrastructure \ This ``investment gap'' makes poor countries losers in globalization, widening gap so the poor get even poorer \ This makes it even harder for poor countries to attract investment \ This vicious cycle is a poverty traps \end{frame} \begin{frame}{How Aid Is Supposed to Work?} Aid allows investment in infrastructure and human capital \ Facilitating outside investment \ Aid can lift poor countries out of the poverty trap vicious cycle and replace it with a virtuous cycle of investment and growth \ Aid is meant as a short- to medium-term measure, not permanent subsistance \end{frame} \begin{frame} \begin{center} \begin{figure} \includegraphics[scale = .5]{figures/easterly.pdf} \end{figure} \end{center} \end{frame} \begin{frame}{Are There Poverty Traps?} From 1950--2001 the growth rate of the bottom 20\% of countries is indistinguishable from the growth rate of the top 80\% of countries \ Of 28 poorest 20\% in 1950, 11 no longer among the poorest 20\% in 1985 \end{frame} \begin{frame}{Does Aid Work?: Easterly's View} From 1950--2001, within 20\% of poorest countries, aid recipients did not grow faster \ In 1990's average African country received aid equal to 15\% of GDP, yet growth plummeted \ Of 88 aid recipients between 1965--1995, only 6 had more than dollar-for-dollar growth \begin{itemize} \item Hong Kong, China, Morocco, Tunisia, Sri Lanka, Malta \end{itemize} \end{frame} \begin{frame} \begin{center} \begin{figure} \includegraphics[scale = .4]{figures/africa.pdf} \end{figure} \end{center} \end{frame} \begin{frame}{Does Aid Work?: Best Evidence} Countries that just barely qualify for aid have higher groth than countries that just fail to qualify (Galiani et al., 2014) \begin{itemize} \item 1 percentage point increase in the aid-to-GNI raises per capita GDP growth by 0.35 percentage points \end{itemize} \ Aid flows from OPEC to poor Muslim countries due to oil shocks have mixed effecdts (Werker et al 2009) \begin{itemize} \item No effect on growth, positive effect on consumption, negative effect on savings \end{itemize} \ Dutch disease: aid inflows $\Rightarrow$ currency appreciation $\Rightarrow$ lower growth in exporting industries (Rajan and Subramanian, 2011) \ Aid associated with decreased democracy, increased corruption, increased conflict \end{frame} \begin{frame}{Easterly's Optimal Aid Policy} Key is conditionality to create good incentives \ Non-corrupt governments who pursue rational economic policy \ Aid organizations that rigorously measure and report outputs rather than inputs \end{frame} \begin{frame}{The Foreign Aid Challenge} Donor governments are not following this advice \ If a policy entrepreneur is interested in better aid policy, need to know why \end{frame} \begin{frame} \begin{center} \begin{figure} \includegraphics[height = .9\textheight]{figures/bdm_smith.pdf} \end{figure} \end{center} \end{frame} \begin{frame}{The Politics of Aid Policy} Think of foreign aid as an exchange of money for policy concessions \begin{itemize} \item Egyptian security cooperation with Israel \its Flyover rights during Iraq and Afghanistan wars \its Lower trade barriers \end{itemize} \ The pattern of economically inefficient aid may be politically optimal \begin{itemize} \item Aid is not intended to help the poor \end{itemize} \end{frame} \begin{frame}{Costs and Benefits of Giving Aid} \textbf{Costs:} Aid uses resources that a donor-country leader could have used for domestic purposes \ \textbf{Benefits:} Aid purchases policy concessions which help the donor-country leader's domestic constituents \end{frame} \begin{frame}{Aid Will Go to Autocrats} Donor-country leader must give recipient-country leader enough aid to compensate for cost of policy concession \begin{itemize} \item Look for the cheapest recipient country \end{itemize} \ Democratic leaders depend on good policy to stay in office, so they are expensive to buy off \begin{itemize} \item Democratic countries are unattractive aid-for-policy targets \end{itemize} \ Because it is cheaper to buy off autocrats with aid than to buy off democrats, most aid will flow to autocracies \end{frame} \begin{frame}{The Political Reality of Foreign Aid} Most aid will be from democrats to autocrats \ Only give aid to democrat when there isn't an autocrat who can provide similar concessions \ Aid packages to democrats will be rare, but when given, will be large \begin{itemize} \item Democrats more expensive to buy off \end{itemize} \end{frame} \begin{frame}{Some Facts from OECD Aid Data} Autocracies more likely to receive aid \ Conditional on aid being given, democracies receive larger packages \ Poverty, death rate, not correlated with receiving aid \ More likely to give to trading partners (especially Scandinavians) \end{frame} \begin{frame}{Politics and Aid: Best Evidence} Rotating membership of non-permanent members of UN Security Council \ Variation in importance of issues facing security council each year \ Countries receive more foreign aid when they have a vote on security council in years when issues are important \ Aid may be buying influence on security council \end{frame} \begin{frame}{The Perverse Welfare Effects of Foreign Aid} Good for donor leader \begin{itemize} \item Policy concession helps domestic constituents \end{itemize} \ Good for recipient leader \begin{itemize} \item Resources can be expropriated and used to reward key supporters or stolen \end{itemize} \ Good for donor citizens \ \pause \textbf{Bad for recipient citizens!} \begin{itemize} \item Make policy concession and keep autocratic leader in office longer \end{itemize} \end{frame} \begin{frame}{Lessons for the Policy Entrepreneur} Do not simply advocate for more aid or ``better aid'' \begin{itemize} \item Aid is ``ineffective" because of political strategy, not because government doesn't understand how to do aid \end{itemize} \ Strategies for an aid-policy entrepreneur \begin{itemize} \item Privatize/de-politicize the delivery of foreign aid \its Encourage multi-lateral over bi-lateral aid \its Identify and empower institutional actors with incentives for non-politicized aid \its Grass roots mobilization on efficacy, not level, of aid? \end{itemize} \ Aid may be doing more harm than good \end{frame} \end{document}