Monthly Archives: August 2014

My first Free exchange column in The Economist is published in this week’s issue. An excerpt:

New research suggests that development aid does foster growth—but at what cost?

Aug 16th 2014 | From the print edition

FIFTY years ago the first United Nations Conference on Trade and Development launched a debate about how much money rich countries should give to poor ones to reduce poverty and bolster growth. In the end, the UN settled on a figure of 0.7% of national income—a target subsequently reaffirmed by endless international powwows. Although few countries have met it, aid spending in real terms has nonetheless increased steadily ever since, to $134.8 billion in 2013 (see left-hand chart). Yet economists are still arguing about how much the aid helps—if it helps at all.

Aid comes in many forms, from food and tents handed out to refugees to cash that plugs holes in poor countries’ budgets. Donors tend to stretch the definition, to make themselves look more generous. But the goal, in most cases, is to lift a poor country’s productive capacity through investment in things like roads, schools and maternal health.

What the UN sees as a potent weapon against poverty, others consider money down a rat hole. Critics reckon aid hurts its recipients by fostering dependency, propping up oppressive or incompetent regimes and pushing up the value of poor countries’ currencies, thereby undermining the competitiveness of their exports. If aid helped, they say, the poorest countries would have been getting steadily richer for decades, which they have not (see right-hand chart). Those who favour giving aid argue that it could indeed lift people out of poverty, but rich countries simply do not give enough. It is like sending fire engines to combat a wildfire: it only works if you send a lot of them.

Assessing the impact of aid on economic growth is complicated by the fact that the causality is not always clear. A positive relationship between the two could simply mean that rich countries reward poor ones for implementing policies that would have helped their economies whether or not they had brought in money. Conversely, a negative relationship may just mean that more aid flows to the countries with the most sluggish growth. In neither instance would aid actually be driving growth.

To get around this problem, economists have long hunted for a factor that affects the amount of aid disbursed but is not otherwise correlated with growth—an “instrumental variable”, in the jargon. Finding one is harder than it seems. Many proposed candidates—such as the size of a poor country’s population or even the colonial empire to which it used to belong—have been found by subsequent studies to have an independent connection to economic performance after all.

Read the rest of my article here.

Simon Hedlin

And here is my second article in the print edition this week. It presents some new evidence that shows that female politicians are just as competent as male politicians. One commonly proposed rationale behind women’s underrepresentation in politics is that they generally are less qualified than men. But as this research suggests, that is unlikely to be true:

Female ministers are fewer than their male colleagues, but equally effective

Aug 9th 2014 | From the print edition

The first of my two articles in this week’s print edition discusses the empirical evidence on whether Democratic presidents or Republican presidents are better at making the American economy grow:

Why the economy has grown faster under Democratic presidents

Aug 9th 2014 | From the print edition

“SINCE 1961…the Republicans have held the White House 28 years, the Democrats 24,” said Bill Clinton in 2012. “In those 52 years, our private economy has produced 66m private-sector jobs. So what’s the jobs score? Republicans 24m, Democrats 42[m].” In the two years since, Barack Obama has increased the Democrats’ lead by close to 5m.

Since the second world war the economy has done better under Democratic presidents, who have overseen more job creation and higher stockmarket returns than Republican leaders. During this time the economy has grown about 1.8 percentage points faster when a Democrat occupies the White House (see chart). Messrs Clinton and Obama credit their economic policies. But new research suggests it has more to do with luck.

Alan Blinder and Mark Watson, economists at Princeton University, studied the last 16 presidential terms—from Harry Truman’s second to Mr Obama’s first—to find out why the economy has grown faster under Democrats. They were quickly able to rule out some possible explanations, like a president’s age and experience, or which party controlled Congress. Though one might surmise that Democratic presidents inherited hardier economies than Republican ones, they actually tended to take over when times were more difficult.

Read the full article here.

Simon Hedlin