Where Does the Money Go Best and Worst Practices in Foreign.pdf

tapraid4/z30-jep/z30-jep/z3000208/z302091d08o moyerr S19 2/27/08 18:35 Art: z30-2091 Input-yyy(psf) Journal of Economic Perspectives—Volume 22, Number 2—Spring 2008—Pages 000–000 Where Does the Money Go? Best and Worst Practices in Foreign Aid William Easterly and Tobias Pfutze oreign aid from official sources to developing countries (excluding private aid) amounted to $103.6 billion in 2006 and has amounted to over F$2.3 trillion (measured in 2006 dollars) over the past 50 years. There have been fierce debates over how effective this aid has been or could be in the future (for example, Sachs, 2005; Easterly, 2006). However, this paper does not address the already ubiquitous issue of aid effectiveness—that is, the extent to which foreign aid dollars actually achieve their goals of reducing poverty, malnutrition, disease, and death. Instead, this paper focuses on “best practices” in the way in which official aid is given, which is an important component of the wider debate. This paper begins with a discussion of best practice for an ideal aid agency, and with the difficulties that aid agencies face because they are typically not accountable to their intended beneficiaries. Perhaps the foremost best practice is transparency, since without transparency, all other evaluations of best practice are impossible. We then consider four dimensions of best practice: Specialization measures the degree to which aid is not fragmented among too many donors, too many countries, and too many sectors for each donor. Selectivity measures the extent to which aid avoids corrupt autocrats and goes to the poorest countries. Ineffective aid channels measur