Given its massive development deficits and the effects of the global economic crisis, many observers, included me, are calling for increased aid to Africa. Most of these appeals are based on Africa’s need for more resources. But there is a different argument.
Aid to Africa is today as productive as it has ever been.
Craig Burnside and David Dollar identified a group of policies (including fiscal stability and low trade barriers) that strengthened the link between foreign aid and per capita income growth. These are the very policies that African governments have been improving over the past decade.
Even after the onset of the global economic crisis, and despite the fears that these
policies may be reversed, African governments have by and large been continuing to pursue prudent economic policies and, in some cases, even accelerating reforms.
In short, the policy environment to make aid productive in Africa has never been better.
To be sure, the Burnside-Dollar paper, like most seminal papers, has come under some criticism, mainly for its neglect of factors other than policy that make aid productive. One of those factors, championed by Hansen and Tarp, and elaborated on by Guillaumont and Chauvet, points out that, independently of the policy environment, aid is productive when countries have suffered a negative shock.
But this is what African countries have suffered in the recent past. So whether it’s because the policy environment has continued to improve, or because of adverse external shocks, there is a strong case that aid to Africa should increase because it is productive.