I finally got round to reading Dead Aid after having conversations with lots of NGO workers that had read it. They praised it as a thoughtful piece that challenged convention. They said it was well-written and researched. They were wrong.
Let me make this clear at the outset: aid is not perfect. Easterly’s first book is wonderful in detailing some of the problems. The Dutch disease is a real worry. The effect on governance is difficult to quantify and will in places prop up some very bad governments. Perhaps the most worrying is the way aid agencies distort the local labour market (e.g. some of Mick Moore’s work), so that bright talented people get sucked into the NGO world rather than starting businesses. So, I have some sympathy with the ‘aid has negative effects’ argument. The problem with Dead Aid is not that the conclusion is worrying to me; it is that the content is badly thought through.
I am aware that some of this is pure intellectual snobbery. She references Wikipedia. She says ‘Collier takes a more nuanced approach by dividing African countries into 3 groups’ (would splitting a billion people into five groups be considered ethnographic research by this reasoning?). She fails to realise that remittances and aid can co-exist. Lots of others have blogged about the problems (Duncan Green has lots of links) and so I won’t go over them in detail. I will mention just one. She constantly mentions that ‘the most aid dependent countries have a growth rate of -0.5%’. She doesn’t go into detail about how she defines these terms, but she does ignore about 15 years of econometric soul-searching. Why do we bother thinking through the issues of identification if the thing people actually read is based on simplistic analysis? What do I mean? Well, you might expect aid to be negatively correlated with growth over some time horizons, even if it contributes to growth.
To explain, she probably measured aid dependency as aid/gdp, and growth as change in gdp. Imagine there are ten countries, each with a fixed amount of aid every year for ten years. Five countries grow, five don’t. Imagine that aid has a small growth-enhancement effect (e.g. the stagnant countries would have been worse without aid, the growing countries did better with aid). For the first five, gdp increases and so the measure of aid/gdp (called aid dependency) decreases. For the stagnant five, growth is flat and ao aid dependency (aid/gdp) is constant. So, we conclude ‘aid is bad’, even though it isn’t. This isn’t an inherent problem of econometrics, it is a problem of not thinking through the analysis you want to do. More has been written about aid and growth than most people want to read (I remember struggling through Growth Econometrics while writing my masters thesis, which is in itself longer than most people want to read on the subject), and yet the debate is influenced by a book that seems to ignore most of it. My argument isn’t that Moyo’s argument is invalidated by not explaining in depth the problems of endogeneity; my argument is that it is not good that the book ignores that issue, and misleads the reader into thinking that the test is proof that is aid is bad.
I despair. But my ‘takeaway’ from this post is not despair or that I don’t much like the book. My takeaway is a question: whose fault is this? Is it academia’s fault for not engaging in policy? Should we all be writing little books that are easy to read? Is it the fault of the public for only wanting to read books that pretend the answers are easy? Bad Science (a column, blog and book by Ben Goldacre) is just one example that you can write sensible popular books on difficult matters that don’t simplify to the point of being misleading. Are blogs a good way of filling this gap? Or do we just talk to ourselves? I would normally take the social science cop out (both sides have a bit of truth) but because this is a blog I will try a whole new cop out: leave comments to have your say.
Edit 1: Ed Carr has a blow-by-blow account of the problems in Dead Aid. HT viewfromthecave for the reminder. And Mark Thoma has a nice piece which is optimistic about the effect of economics blogs.
