Lesson 6: Foreign Aid - Class Notes



This week we consider a controversial topic, the role of foreign aid in promoting economic development (growth) in developing countries. I don’t want to lecture too much, as our reading can provide much better insight, as Easterly was a central participant in this debate. I will give you an overview of the history of foreign aid and its major stages/programs (structural adjustment lending, etc.), the theoretical arguments for aid’s necessity (Harrod-Domar model, financing gap/poverty trap, etc) and an empirical assessment of its effectiveness (or lack thereof).

We will have our discussion on Monday, October 7.



See this week’s readings page for required readings for our discussion.

Math Appendices

Many papers this weekNone are required reading! But if you want to understand foreign aid, or development economics at all, you need to become familiar with the empirical literature.

are empirical, as the entire debate (and many, many things in development economics) revolves around the empirical effect of foreign aid on growth. Thus, the papers have regression models and a series of regression tables. I cover the very basics at a 10,000 foot level in the slides this week (what a regression model is - essentially fitting a line to data points - and how to interpret the results in a table). If you want to understand it better, see my econometrics class, particularly class 2.3 for the basics.