What Aid Can't Do: Reply to Ranis

Abstract

Gustav Ranis addresses our recent article in this journal where we argued that foreign aid is unable to solve the economic problem and thus unable to make poor countries rich (Skarbek and Leeson 2009). The following quotations from his article summarize his main objections to our argument:

"Instead of the MCC’s [Millennium Challenge Corporation’s] present grants-for-projects approach, favored by Easterly and Skarbek and Leeson, policy-based program lending or grants should be relied upon.

Skarbek and Leeson are ready to throw the baby out with the bath water. While foreign aid as presently practiced is admittedly flawed, there is no reason not to encourage at least this promising new window [a modified MCC] as a potentially valuable component of our long-term foreign policy arsenal [Ranis 2011]."

We have two replies to Ranis’s remarks. First, while we cannot speak for William Easterly, we can speak for ourselves. And we can say unequivocally that neither of us favors a grants-for-projects approach to foreign aid. Second, we question the ability of a modified MCC to address the plight of poor people in developing countries.

Keywords: foreign aid effectiveness, international aid grants, global poverty

JEL Classification: F35