Foreign Policy Tools: Foreign Aid

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At a time when the entire foreign affairs budget is under fire, it is more important than ever to address the question of whether foreign aid is effective. Official development assistance, or ODA, as the foreign assistance component of the foreign affairs budget is called, is roughly half of that budget, and is arguably the part about which the public is most skeptical.

The United States, once the world leader in global aid, is now in fourth place after Japan, Germany, and France in terms of absolute amounts. In terms of percentage of GDP, with 0.1 percent of American GDP allocated to ODA, the United States is well at the bottom of all industrialized nation donors. This clearly imperils U.S. leadership not only in international financial institutions such as the World Bank, but also in the aid debate more generally. Washington is increasingly being seen as unwilling to pay its global dues.

It is time to ask some hard questions about foreign aid. What do we know about it? Does it work? Is it effective? There has been much debate in recent years. I'd like to try to sum up what we know about aid effectiveness - and what we don't.

One reason for the extensive debate over aid is that so many diverse objectives drive its allocation that it is hard to evaluate how effective it is. While economic growth is clearly not the sole objective of foreign assistance, it's one of the few areas where …