Question

When is aid likely to be successful and when is it likely to failaccording to Paul Collier?

Answer 1

Shifting aid to support business will be essential for small low-income countries that are the core of the development challenge. What is more, other advanced countries are also building up public agencies like the CDC. Aid is needed to pay for the substantial public benefit of bringing reputable companies into difficult countries. Without such groups, the poorest countries will struggle to develop, and without public support, there will be too few of them.

In Africa, for instance, companies have hardly ever scaled up and so their workers are condemned to poverty. The reason is that the economies of many African countries are tiny, environments are risky and markets are undeveloped.

Africa has stagnated despite receiving considerable international aid. Paul Collier suggests that the most reasonable counterfactual is that without aid Africa would have declined, so that aid has been helpful in averting disaster, although lacking the power to achieve decisive change. Based on a diagnosis of the reasons for past stagnation.

What is the role of aid in decisive change?

At one end of the spectrum of possible positions, a sufficiently large increase in the quantity and delivery of aid would itself constitute the decisive change, or directly trigger it. At the other end of the spectrum, aid is the critical inhibitor—big aid to Africa explains why Africa has failed to grow. In between these extremes, a third possible position is that aid is marginal—a sideshow to the true determinants of change. A fourth position, which is the one both Doucouliagos-Paldam and I find the most likely, is that aid is conditionally important depending upon the circumstances but may also be conditionally detrimental.

Hence, there is a dilemma. Past aid has not been decisive for growth, but it may well have been decisive in preventing collapse. Quite possibly, that role was only a phase during which African governments were learning how to manage their extremely difficult economic environments, and African societies were learning how to hold their governments to account so that the past counterfactual of decline no longer applies. Thus, aid-as-usual would make growth rates significantly positive instead of preventing them from being significantly negative. However, aid to Africa is in the process of being scaled-up.

He thinks that the way out of this dilemma is to leave aid systems broadly as they are for the existing volume of aid, but to find opportunities for using aid that have to date been missed, to which the additional aid can be directed.