Foreign Aid Is Not the Key to Growth

It is said that there is a "financing gap" in the developing world. This gap represent the difference between the access to capital they currently have and the the access to capital needed to reach sustainable growth. As noted in Easterly (2003), development economists believe that offial development aid (ODA) is needed to make up the difference in capital. These economists believe that the ODA will finance investement which will in turn finance sustainable growth in the long-run.

However, Foreign Aid is a type of welfare. As noted in Easterly (2003), "aid finances consumption, not investment." The old adage still applies, "give a man a fish, he eats for a day. Teach a man to fish, he will eat for a lifetime." The developing world needs investment to sustain growth which is done by "teaching them how to fish." We can do this by advocating the policies that will encourage investment such as trade openness, privatizations, deregulation, and sound monetary and fiscal policy.

Unlike Foreign aid advocates like Bono and Sachs who believe in beaurocrats, politicians, and aid agencies, advocates of "teaching them how to fish" believe in citizens in the developing world. Giving econonic freedom to the whole country is the only road to growth in the 3rd World. Giving economic power to a few elites will only perpetuate the lack of growth and create a road to serfdom (if they aren't already there).