Foreign Aid in Times of Crisis: Can Ireland Give too Much?

With austerity-mongers looking for further turnips to squeeze, foreign aid appears to be a natural choice with a budget in Ireland of over €650 million in 2011.  The debate over contemporary foreign aid funding essentially boils down to a discussion over how to use scarce resources during times of crisis – to support the poor at home or the very poor abroad?  While there are valid arguments on both sides of the aisle, an arrow in the quiver of those calling for the reduction or elimination of foreign aid is the generally poor track record of foreign aid at promoting economic growth and development in the countries to which it is directed.  Beyond simple ineffectiveness, recent research suggests that there may even be a “curse” of aid, where too much foreign aid can decrease government quality, make recipient countries beholden to their donors, and harm economic performance.  These negative impacts can lead to “aid dependency” wherein countries enter an aid-induced poverty trap from which they cannot escape.

A new working paper by SPIRe’s Dr. Samuel Brazys investigates at what levels of foreign aid countries may become “aid dependent.”  His research finds that while aid-dependency may exist, it does not appear to become manifest until aid levels are much higher than those received by most Irish Aid recipients.  Thus, while there may be a need for caution and careful evaluation in expanding existing aid programs, there is little concern that current aid flows are leaving a “curse” on aid-recipient countries.

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