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What Angus Deaton, the Latest Nobel Winner, Says About Foreign Aid



Angus Deaton of Princeton UniversityCredit Princeton University

The work of many economists can be impenetrable to people who are not steeped in the discipline. But that’s not true of the research and writing of Angus Deaton, a Princeton professor to whom the Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in Economics on Monday.

The academy said it was giving Mr. Deaton, an American and British citizen who as born in Scotland, the prize for his work on “analysis of consumption, poverty, and welfare.” What has made his research particularly noteworthy is that he used data from household surveys, rather than aggregate national economic statistics, to show that people often do not behave as economic theory would suggest.

A good introduction to Mr. Deaton’s work and thinking can be found in his 2013 book “The Great Escape: Health, Wealth, and the Origins of Inequality,” which I recently read. In it he provides a succinct and cogent description of how billions of people around the world escaped poverty and disease in the last 250 years. He also explains what keeps so many hundreds of millions more in abject poverty and what can be done to help them.

In his analysis, he argues that foreign aid is not a good answer to the needs of the poor in developing countries and says that, in fact, aid can grievously hurt the countries that receive it. He points out that in recent decades China and India have made huge strides in reducing poverty but that those two countries receive relatively little in foreign aid compared with many other developing countries that got more aid per capita but have made much less progress. The most India ever received was $3.10 per person in 1991 and the most China ever got was $2.90 per person in 1995. By comparison, he writes, Zimbabwe received foreign aid that totaled more than 10 percent of its national income in 2010, or about $60 per person.

Here is an excerpt from his book on international aid:

To understand how aid works we need to study the relationship between aid and politics. Political and legal institutions play a central role in setting the environment that can nurture prosperity and economic growth. Foreign aid, especially when there is a lot of it, affects how institutions function and how they change. Politics has often choked off economic growth, and even in the world before aid, there were good and bad political systems. But large inflows of foreign aid change local politics for the worse and undercut the institutions needed to foster long-run growth. Aid also undermines democracy and civic participation, a direct loss over and above the losses that come from undermining economic development. These harms of aid need to be balanced against the good that aid does, whether educating children who would not otherwise have gone to school or saving the lives of those who would otherwise have died.

Mr. Deaton’s ideas and research deserve close attention and not just from economists and scholars, but also elected officials and international policy makers. Last month, members of the United Nations adopted 17 Sustainable Development Goals, including the elimination of extreme poverty in the next 15 years. As part of those goals, the U.N. is calling on industrialized nations to provide more aid to poorer countries. But while aid can help alleviate the worst catastrophes and deprivation, as Mr. Deaton notes, the best way to eliminate poverty is for developing countries to pursue faster and more inclusive economic development on their own.

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