Cato Policy Analysis No. 273 April 25, 1997

Policy Analysis

Help or Hindrance:
Can Foreign Aid Prevent International Crises?

by Doug Bandow

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Reagan. He is the author and editor of several books, including U.S. Aid to the Developing World: A Free Market Agenda and Perpetuating Poverty: The World Bank, the IMF, and the Developing World (with Ian Vásquez).


Executive Summary

Few programs have consumed as many resources with as few positive results as foreign aid. Since World War II the United States has contributed more than $1 trillion in assistance to other countries. Other nations and international aid agencies have provided more. Although individual development projects have no doubt worked, and humanitarian aid can help alleviate the effects of crises, there is little evidence that cash transfers do much to advance growth or stability in the developing world.

The failure of foreign assistance to meet its traditional goals has led to new justifications. A current favorite, especially of the Clinton administration, is that international financial aid can prevent social catastrophe. But almost every country that has suffered internal catastrophe collected abundant foreign aid beforehand. Foreign aid did not forestall catastrophe. To the contrary, in many countries it helped create and aggravate problems.

Decades of financial transfers have not fostered economic growth. Many nations have been losing ground. Seventy developing states are poorer today than they were in 1980, and 43 are worse off than they were in 1970. Aid levels do not correlate with economic growth.

To truly help poor nations, Washington should end government-to-government assistance, which has often buttressed brutal and venal regimes and eased pressure for reform, and drop its trade barriers, which now impede poor nations' participation in the international marketplace.

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