The answer to (almost) all of the questions in development economics seems to be “it depends.” However, this paper clearly illustrates that foreign aid tends to have a significant minimizing effect on the level of poverty within a country, using the multidimensional poverty index. I completely agree with the authors’ opinion that using the MPI instead of income to measure aid’s effects on poverty is viable and perhaps even better. Foreign aid does not, and usually should not, translate to money going directly into the pockets of those in need. Investments in public infrastructure and other public goods can often be the most effective use of funds (as we saw with land grant institutions, for example). Since the MPI more accurately depicts the capabilities of those living in poverty, I feel that Amartya Sen would agree with its use as an indicator of whether foreign aid contributes to poverty alleviation.
The organization that sponsored this paper and contributed the original data set is the Oxford Policy and Human Development Initiative. After looking around their website for a bit (https://ophi.org.uk/) it seems that their objectives follow our class very closely. For example, one of their most recent papers is titled: “Distributional Impacts of Cash Transfers on the Multidimensional Poverty of Refugees: The ESSN Programme in Turkey.” The authors find that this unconditional cash transfer program has reached 1.8 million refugees in the country and has an enormous effect on alleviating multidimensional poverty. The OPHI is contributing extremely relevant work to the field of development economics and I enjoyed looking at the most recent developments in the field on their website.
I found it extremely insightful that the author decided to target the research question of examining the relationship between aid and poverty. At first glance, I to, would think that the relationship between aid and economic growth would be somewhat consistent with that of aid and poverty, but Milovich rightly points out economic growth has a very one-dimensional relationship with poverty alleviation (fails to account for education, health, quality of life). With this in mind, it is still extremely suprising to me that there is not a consensus on the relationship between aid and poverty. It seems to me, from the outside looking in, that aid has been such an obvious component of alleviating poverty that it would be better researched and understood. It is no surprise that aid has a negative relationship with the MPI as well as multidimensionally poor people. I am somewhat intrigued by there not being a statistical relationship between aid and income poverty so I would be interested to examine that relationship more extensively.
Also, it seems that a large reason that it has been so difficult to find a legitimized relationship between aid and poverty has been because of the lack of data on poverty in general. I would be interested to see how poverty indices such as the MPI have developed over time and (hopefully) have been providing more accurate and extensive information as well. As more detailed information on poverty conditions in LICs grow, I would find it fascinating to better understand how aid targeted for different uses (ex: education, health, food) impacts poverty in unique ways. If this answer becomes better understood, it could have extremely positive benefits in utilizing aid in the most efficient way to do the most good.
When I first examined the paper and read the title "does trade reduce poverty," my mind immediately went to yes it should reduce poverty. It gives the countries a way to bring in more revenue and get access to products and materials they were not able to previously. When I thought about labor I figured that trade would bring in more jobs and opportunities for labor.
Soon into this paper I realized that it is not that simple. The answer to the question is like many we have encountered before "it depends." When I read that open trade tends to reduce poverty when the financial sector grows deeper, their education level higher and their institutions stronger, I was surprised that there were so much the success was contingent on. Interestingly though, such trade liberalization could increase the opportunities for economic activity, which can widen income inequality and not improve poverty. This is something I had not thought about before this paper.
Additional policies will be needed to enhance trade liberalization. Countries need to focus on policies that strengthen their human capital and financial development if they want to see all the benefits of trade liberalization. Countries need to focus on these hidden benefits. I worry that countries will not follow through and fully develop holistically in order to capitalize on the benefits.
I think that more papers and studies like this are needed for policy makers to understand how to fully capitalize and maximize benefits.
I think this paper does a great job of illustrating the fact that aid alone does not reduce poverty or help nations to develop. There are a multitude of considerations for how effective aid can be in reducing poverty. First of all, where does the aid come from, and what conditions does it come with? Is this aid politically motivated? What portion of it will eventually end up in the hands of the people who need it most? All of these factors, and many more paint a complicated picture for the relationship between aid and poverty, and we can try to simplify this through modeling, as the paper does, but the real answer is, it depends.
Milovich’s paper analyzing the effects of aid on reducing poverty combines data of US delivered aid from 1949-1999 and the multidimensional poverty index data since 2000 to derive a relationship between US delivered aid and the decreasing rates of poverty in developing countries. His analysis covers 64 developing economies and recognizes a 14.6% increase in aid from the US with a 1% increase in average amount of aid received causing a 0.61% reduction in the MPI. With a 14.6% increase, this would be a 8.906% decrease.
In the light of this correlation, it seems US aid, properly allocated, makes a positive impact on developing economies. One idea that came to my mind is the combination of providing aid based on a condition and ensuring a gradual allocation of that aid. Resource-rich countries, like those in this study, especially when it comes to agriculture, are reliant on long-term benefits from inputs. A reliable, incentivized allocation of aid could ease some of the stressors of uncertainty for the next yield while also providing some sort of structure to investment in human capital. I’d be curious to see how certainty in financial security affects one’s ability to invest in long-term gains. Long-term gains allow economies to then find stability and growth, as opposed to maybe an immediate response to aid that isn’t sustainable.
This was a really interesting article - I always enjoy reading about the solutions researchers find to combat reverse causality and endogeneity, so seeing temporary security council membership used as an IV for U.S. development aid was quite cool (I had never considered temporary security council membership as a factor in aid). The fact that Milovich could use it as an IV, however, is in itself concerning, and highlights one of the problems that I've seen discussed with regards to international aid: aid has often been used as a short term instrument of political influence, rather than a long term collaboration. What's the lasting impact on human development of, say, giving a country money to build new health clinics if in two years the aid is cut and there's no money left to staff or supply them? Who do such actions really end up serving?
Surprisingly, the part of the paper that I found the most interesting was actually in the robustness checks including a country's natural resource endowment, where Milovich finds that greater resource endowments are associated with higher incomes as well as a higher MPI score. For me, this exemplifies why Milovich's approach of using the MPI to measure poverty rather than income is so justified, because it gets at the heart of what we really care about - not whether there is income, but what function that income is serving.
This paper shows that aid works as it is intended to - it decreases multidimensional poverty by improving health outcomes, educational achievement, and infrastructure. I found it interesting that aid to countries was, overall, successful regardless of institutional quality. Another really interesting observation was the fact that resource rich nations had more multidimensional poverty and inequality.
One question I had from this paper is why income does not increase if education and health metrics do. As we have discussed in earlier classes, better health and better education should increase a person's marginal product of labor and wage. Someone who can. A. work more for longer and B. who has more education and better skills should be paid more.
Income growth alone is not a good measure of development- growth in income without any increase in health, education, or infrastructure indicates a disconnect in development that might soon turn into a development failure. Likewise, improvement in key indicators that should trigger income growth and the failure for income growth to be realized might show a disconnect somewhere.
I think that the approach the authors took to answering the question of does aid reduce poverty was really interesting and quite clever. It seems important to me to recognize that table 2 shows correlation rather than causation. In combination with table 5, I think that the reason why there is a reduction in income poverty and multidimensional poverty becomes much clearer. Aid seems most effective in impacting the MPI indicators; broadly education, health, and living standards. All 10 indicators saw a statistically significant relation between aid and their improvement. In what seems to be a good thing, the largest elasticity relates to education, improving both schooling and attendance. From other readings that we have done, we know that investments in education are an important piece of the development puzzle. This is where I believe we can turn our attention back to table 2, where I would be curious to see more research done on if increases in education that come as a result of foreign aid are related to a reduction in income poverty and multidimensional poverty. My hypothesis would be that if children are able to attain more years of schooling as a result of foreign aid, then as they grow older there would be a reduction in income poverty and multidimensional poverty in that household. Surely, the other indicators factor in as well, but with all the reading we have done regarding the importance of education, I’d be really curious to see if there is a relationship there, perhaps with some focus on differences between boys and girls.
This paper struck me as very creative in terms of its experimental design and the use of UNSC membership as a proxy for aid. The conclusion, that aid seems to improve MPI but not income, is interesting as well - I reckon this can be interpreted as aid helping to improve lives but not being a viable method of spurring self-sustaining economic growth.
I wonder how different types of aid affect long-term development. Food, health, and education spending can decrease short-term mortality (this is good) and should lead to long term improvements in human capital. We would imagine these in turn improve incomes and economic conditions, though that was not seen in this paper. Does American aid spur long-term growth and self-sufficiency? How does American aid compare with China’s influence in Africa, for example? China’s habit of funding infrastructure development does not seem as altruistic and has been criticized heavily by Westerners who see it as a scheme to ensnare developing nations in debt traps, but it provides an intriguing model. There is certainly a need for both human and physical capital spending, but perhaps the human-capital income improvements from our aid are not clear on account of the extremely deficient physical capital stock in many of the recipient countries.
About two years ago I read a book called "the end of poverty" by the famous Jeffrey Sachs. It was more than fascinating to read it and one of the quotes in the book was that " countries are like people. When they are sick, they need help from other countries just like people do". Since that day, I always thought of aid as a crucial factor in alleviating poverty. Reading Milovich's paper, however, made me question this knowledge a little. Not because this paper strongly contradicts Sach's claims on aid, but because it acknowledges a possible negative relationship between aid and poverty.
In as much as aid can help alleviate poverty by providing the central government additional financial support that can later be invested in the economy, the real answer to this relationship is "it depends". Just as mentioned in the article, aid sometimes comes with conditions that may later be a burden to the receiving country. So before talking about the nature of such a relationship, a lot of questions should be considered first. What is the aid? where is coming from? who is receiving it? what are we using it for?
Aid can be detrimental to alleviating poverty but for countries that struggle to finance some of their projects, I believe that thinking about aid is not really a bad decision. That is why it is important for countries to establish strong relations with each other so that the conditions of receiving aid are more of a "friendly term" rather than imposing conditions that will later damage the economic growth prospect of the receiving country
One of the key findings of this paper was that foreign aid has a meaningful effect on improving outcomes such as health, education, and living standards. However, the researchers did not find a statistical link between increased aid and reduced income poverty. Over the past few weeks we have discussed how, especially in the US, the government often fails to read into the findings of economic research. As we know, unlike the studious members of our class, policymakers are not the type to open up a 47-page paper and read the whole thing. My fear is that policymakers may look at the relationship between aid and income poverty and conclude that this aid was useless. As we wrap up the semester, one of my key takeaways is that income is a poor measure of quality of life. As Sen would put it, the goal that we should be striving for is allowing everyone to meet their capabilities.
To sort of switch gears a bit, I think it would be cool to talk in class tomorrow about the new AI bot Chat GPT and how it may replace jobs. I think there could definitely be implications on the job market outcomes we talked about on Wednesday.
As with a lot of the economic literature discussed in this course, the answer to whether or not foreign aid can help reduce poverty and increase development is that it depends. One idea from the paper which caught my attention was the following: “identification of the causal effect of aid on growth has been elusive so far due to foreign aid being endogenous in growth models”. While there is certainly a need for justification of billions and billions of dollars being spent every year on foreign aid just from the US government alone, I believe that the impacts of foreign aid are not always something that can be boiled down into plain economic models.
How can one simply place a value on the millions of lives saved and drastically improved through foreign aid? For example, the Johns Hopkins Malaria Research Institute in Zambia or developments made in education for girls in developing countries… while there is obviously a dollar amount tied to these kinds of investments, their impact can not possibly be measured.
After reading this paper, I wonder how much of a role domestic institutions play as a confounding variable in the relationship between foreign aid and poverty. The study shows that the relationship between aid and income poverty is not statistically significant, though when compared to rate of people living in multidimensional poverty, it shows a negative relationship. If more people are living in better conditions but income poverty is not decreasing, what is keeping poor households from reaching higher wages? Could it be a government being inefficient at manipulating labor markets, while also providing programs like CCTs to improve families’ living standards? Once again, it seems like the answer to the paper’s main question is that “it depends”.
Before I read this paper, I had an Angus Deaton moment where I said to myself, "Yes, aid does reduce poverty." However, I began to think more following my studies in POV-101 about the word..." poverty." It is important before conversing about topics such as "-isms" or broadly use societal terms (ex: sustainability) to define what we mean when we used them. Poverty is no exception. To reduce poverty means what exactly? Reduce financial burden among low-income households? Increase social acceptance of all members in rural communities? Poverty is a multidimensional issue as the authors address in the introduction. I was happy to see such a clarification, including that analyzing how increased aid impacts poverty by looking at economic growth fails to "consider other social factors that indeed affect the well-being of people, such as education, health and quality of life among others" (1). This language evokes more of a "Senian" view towards poverty, which I am fond of when conducting development economics.
The researchers' tactic for capturing the effect of aid on poverty is through the different number of years countries have been members of the United Nations Security Council (UNSC). This approach seeks to subvert the endogeneity bias between aid and poverty because of reverse causality. It was extremely interesting to learn therein that Kuziemko and Werker (2006) found the quantity of aid from the United States that a country received increased by more than 59% when serving on the UNSC, wow. My suspicion for this is such that the U.S. will pledge to give aid in exchangege for a vote from the representative from the developing country in question on the UNSC: dodging, but effective.
The basic OLS empirical results find almost all coefficients to be negative (as aid increases by 1, then income poverty or multidimensional poverty (defined by the MPI) decreases by B), and significant values in all 18 models, which is an optimistic (and hopefully expected) finding. However, these results do not hold true when checking for robustness. I think it is interesting that the decreases for MPI are significant, but gap/headcount measurements are not. The researchers conclude by suggesting the MPI be more widely adopted to measure poverty, as from this study the effect of U.S. aid would be more fully realized.
It does not surprise me that aid is significantly beneficial in decreasing multilayered poverty. You would expect that providing the funds to establish proper education, health and quality of life. Like other people have mentioned, it is somewhat surprising that there is no statistical significance in an increase in income. We’ve talked about development and freedom as a means to an end since the beginning of class, and I would imagine that this is because aid comes more towards the early stages of the means. Providing additional resources for these countries to begin working towards tackling issues like poverty, but it doesn’t necessarily mean that providing these funds immediately helps reduce it. I think the way to think about it would be to view it statistically, where we could say that aid and MPI are correlated and MPI and income poverty are correlated, which means that income poverty and aid must be correlated. However, the correlation between income poverty and aid two doesn’t have to be a strong correlation, which may be why the author found it to be insignificant.
What a paper. Last one of the semester, and it was a beast. Josh suggested I have chatgtp write this blog post for me to demonstrate the effect of technology displacing labor, but I told him I have to this one myself, the right way. For me, this paper just reinforced the points made in class on Wednesday regarding the multitude of dynamics at play in reducing poverty. Opening up trade won't by itself bring people out of poverty, but it can worsen wealth inequality and even exacerbate poverty in MDCs. It was interesting to learn what areas are most impacted by foreign aid. Education is highly impacted but healthcare metrics don't seem to respond much to foreign aid. Reading this paper got me to look at who is receiving the most aid from the US in recent years, and it was quite ironic to see countries like Afghanistan, Yemen, and Iraq high on the list. These are countries where the US has been either directly or indirectly responsible for the destruction and demise that have left millions of people far worse off than they may well be had the US not mettled in their affairs. The United States can throw hundreds and millions of dollars at Yemen in the form of aid, but when they make billions and billions off of Saudi Arabian weapons sales, it is clear to see where America's motivations truly lie. On top of this, the US attributes a much smaller percentage of its GDP to foreign aid than other countries, namely those of northern Europe. The amount of aid the US offers in countries that it has played a large part in devastating for the past two decades is like offering a band aid to someone that jumped on a live grenade. I am sure the government could find a few extra dollars in their budget and allocate them to more humanitarian causes instead of throwing them at the DOD to build and buy rockets that'll fall on a hospital in a war-torn Middle Eastern country.
This paper did not surprise me at all, although it was a very interesting read. I strongly believe that aid could do no good if the existing institutions in the countries receiving aid are not set up to utilize that aid effectively. I am concern about corruption, that the resources would go to the people in power, instead of those who need them the most. And even if the aid go to the poor, they are not educated enough to know how to spend it effectively. I don't think aid should come mostly in money, but in human capital, as in aid of technology, education, and human development. Perhaps the true answer is "it depends", but I would like to say that no, there is a clear correlation between how educated a population is, how good its government is, and how effectively it spends resources.
I honestly do not find it very surprising that US aid can help alleviate poverty in other countries. And as we discussed in class a few times in class, it does not cost much more out of our pockets to help others. Merely a 1 percent increase can impact other people so greatly in developing nations. But some people aren't considerate enough beyond their own nationality.
I feel that someone like Amartya Sen would enjoy this paper specifically because of the measures of poverty used. Economists often stick to one measure. However, headcount and poverty depth are both addressed in this paper. An argument is not only made for the use of a MPI, but for adherence to the MDGs. Poverty is further than just a lack of income, it's a lack of freedom and exposure to tragic choices which income can be a determinate of but not solely.
To further this study, I think it would be very interesting to look at the efficiency of the use of AID dollars. What do countries do with the dollars? Where are they allocated to? Are they being used efficiently and if not, how can we help them? My only worry with this kind of study is that people will take the data out of context and show that aid dollars aren't used correctly therefore we should send money to anyone.
I found this paper pretty upsetting, now knowing that the US gives its aid based upon what it has in its own best interest as opposed to who needs it the most. The fact “that a country received roughly 14.6% more aid from the U.S. on average during the period 1946–1999 when rotating at least one additional year onto the council” just goes to show what these people in positions of power are really after. This observation reminds me of the climate crisis, in that the people who hold political positions that could actually make a difference tend to have alternative motives in their policy making. I think that due to the results of papers like this, the way the US allocates its aid going forward should be heavily monitored and judged internally to make sure that we are always doing what is right for the world, not just ourselves. However, it is important to note that the aid the US does release is benefiting the recipient countries. When I first read that there were studies that showed that poverty was not impacted, I was quite confused. Upon reading the paper further, however, I began to understand and appreciate the differences between poverty and the variables found within the MPI. I think that this provides an example as to why some economic data does not at first make real world sense, and why further (as well as long-term) investigation is so critical to understanding development economics.
This paper was really thorough in analyzing the relationship between these two factors. In my economic social issues class, I learned about the effects of US aid on Afghanistan, the largest recipient of US Aid. Although there are some positive effects, there are consequential outcomes as well. The US had no oversight over how the aid was utilized, allowing corruption to become rampant and new criminals to take power. The US aid in some compacity continued the previous issues. Therefore, coming into this paper, I was expecting an outcome of limited effects of aid. The following paper concluded aid reduces MPI by a small margin and has no effect on income poverty. This makes sense because aid is not supposed to just give disposable income, but rather meet the necessities of food, health, and other crucial life components. My only confusion is earlier the paper noted there were hardly any effects on either form of poverty, so I was confused as to how controlling for more variables made aid effective against MPI. Lastly, this paper never mentioned Afghanistan, which I thought was interesting since it is one of the world's largest recipients of aid.
To me, this paper highlights the cross-section of economic development and geopolitics. I was unsurprised to read that the majority of foreign aid doled out by the US prior to 2000 was largely politically motivated. This makes sense given what I know about the cold war. The paper made me think of the Marshall Plan, arguably the first large scale aid package in development. Historians are quick to note that the aid package wasn’t approved out of compassion or goodwill. It was to prevent a communist expansion into western Europe. A similar story plan out across the world. Both the US and USSR attempted to gain geopolitical leverage by offering aid packages to decolonizing spaces. I thought the connection to the UN security council to be fascinating. It does not surprise me that the US would use the UN as a vessel for advancing our own interests. I found it interesting that the paper only mentioned China as a permanent member of the UN security council. In my opinion, the paper neglected to state that China is one of the largest distributors of aid. Most Chinese aid is in the form of loans with below market interest rates and other investments. They are also notorious for using aid and investments as leverage. Through their Belt and Road initiative, China is playing the same geopolitical game with foreign investment that the US played in the 20th century.
I found this paper to be both convincing and confusing. Its findings aligned well with many of the ideas we have discussed in class. Economic development is not simply confined to GDP growth, but rather it involves many of the components of the Multi-Dimensional Poverty Index. Indeed, the paper finds that an average increase of 1% in US aid between 1946 and 1999 is significantly related to lower percentages of deprivation in education, health, and living standards from 2000 to 2014 in countries receiving aid (rotated at least one year on UN security council). I found many of the figures to be intriguing, but none more than Figure 6: Size of MPI elasticities to aid: decomposition by indicator.
I would like to discuss the author’s modeling more in class. I found it difficult to follow how they accounted for reverse causality and endogeneity issues between poverty issues and aid. What are 2SLS regressions? Additionally, I wouldn’t mind discussing their implementations of controls.
The answer to (almost) all of the questions in development economics seems to be “it depends.” However, this paper clearly illustrates that foreign aid tends to have a significant minimizing effect on the level of poverty within a country, using the multidimensional poverty index. I completely agree with the authors’ opinion that using the MPI instead of income to measure aid’s effects on poverty is viable and perhaps even better. Foreign aid does not, and usually should not, translate to money going directly into the pockets of those in need. Investments in public infrastructure and other public goods can often be the most effective use of funds (as we saw with land grant institutions, for example). Since the MPI more accurately depicts the capabilities of those living in poverty, I feel that Amartya Sen would agree with its use as an indicator of whether foreign aid contributes to poverty alleviation.
The organization that sponsored this paper and contributed the original data set is the Oxford Policy and Human Development Initiative. After looking around their website for a bit (https://ophi.org.uk/) it seems that their objectives follow our class very closely. For example, one of their most recent papers is titled: “Distributional Impacts of Cash Transfers on the Multidimensional Poverty of Refugees: The ESSN Programme in Turkey.” The authors find that this unconditional cash transfer program has reached 1.8 million refugees in the country and has an enormous effect on alleviating multidimensional poverty. The OPHI is contributing extremely relevant work to the field of development economics and I enjoyed looking at the most recent developments in the field on their website.
Posted by: Tyler Waldman | 12/07/2022 at 11:28 AM
I found it extremely insightful that the author decided to target the research question of examining the relationship between aid and poverty. At first glance, I to, would think that the relationship between aid and economic growth would be somewhat consistent with that of aid and poverty, but Milovich rightly points out economic growth has a very one-dimensional relationship with poverty alleviation (fails to account for education, health, quality of life). With this in mind, it is still extremely suprising to me that there is not a consensus on the relationship between aid and poverty. It seems to me, from the outside looking in, that aid has been such an obvious component of alleviating poverty that it would be better researched and understood. It is no surprise that aid has a negative relationship with the MPI as well as multidimensionally poor people. I am somewhat intrigued by there not being a statistical relationship between aid and income poverty so I would be interested to examine that relationship more extensively.
Also, it seems that a large reason that it has been so difficult to find a legitimized relationship between aid and poverty has been because of the lack of data on poverty in general. I would be interested to see how poverty indices such as the MPI have developed over time and (hopefully) have been providing more accurate and extensive information as well. As more detailed information on poverty conditions in LICs grow, I would find it fascinating to better understand how aid targeted for different uses (ex: education, health, food) impacts poverty in unique ways. If this answer becomes better understood, it could have extremely positive benefits in utilizing aid in the most efficient way to do the most good.
Posted by: Patrick Rooney | 12/07/2022 at 04:55 PM
When I first examined the paper and read the title "does trade reduce poverty," my mind immediately went to yes it should reduce poverty. It gives the countries a way to bring in more revenue and get access to products and materials they were not able to previously. When I thought about labor I figured that trade would bring in more jobs and opportunities for labor.
Soon into this paper I realized that it is not that simple. The answer to the question is like many we have encountered before "it depends." When I read that open trade tends to reduce poverty when the financial sector grows deeper, their education level higher and their institutions stronger, I was surprised that there were so much the success was contingent on. Interestingly though, such trade liberalization could increase the opportunities for economic activity, which can widen income inequality and not improve poverty. This is something I had not thought about before this paper.
Additional policies will be needed to enhance trade liberalization. Countries need to focus on policies that strengthen their human capital and financial development if they want to see all the benefits of trade liberalization. Countries need to focus on these hidden benefits. I worry that countries will not follow through and fully develop holistically in order to capitalize on the benefits.
I think that more papers and studies like this are needed for policy makers to understand how to fully capitalize and maximize benefits.
Posted by: Sarah Wittpenn | 12/08/2022 at 03:40 PM
I think this paper does a great job of illustrating the fact that aid alone does not reduce poverty or help nations to develop. There are a multitude of considerations for how effective aid can be in reducing poverty. First of all, where does the aid come from, and what conditions does it come with? Is this aid politically motivated? What portion of it will eventually end up in the hands of the people who need it most? All of these factors, and many more paint a complicated picture for the relationship between aid and poverty, and we can try to simplify this through modeling, as the paper does, but the real answer is, it depends.
Posted by: Sherman Golden | 12/08/2022 at 05:04 PM
Milovich’s paper analyzing the effects of aid on reducing poverty combines data of US delivered aid from 1949-1999 and the multidimensional poverty index data since 2000 to derive a relationship between US delivered aid and the decreasing rates of poverty in developing countries. His analysis covers 64 developing economies and recognizes a 14.6% increase in aid from the US with a 1% increase in average amount of aid received causing a 0.61% reduction in the MPI. With a 14.6% increase, this would be a 8.906% decrease.
In the light of this correlation, it seems US aid, properly allocated, makes a positive impact on developing economies. One idea that came to my mind is the combination of providing aid based on a condition and ensuring a gradual allocation of that aid. Resource-rich countries, like those in this study, especially when it comes to agriculture, are reliant on long-term benefits from inputs. A reliable, incentivized allocation of aid could ease some of the stressors of uncertainty for the next yield while also providing some sort of structure to investment in human capital. I’d be curious to see how certainty in financial security affects one’s ability to invest in long-term gains. Long-term gains allow economies to then find stability and growth, as opposed to maybe an immediate response to aid that isn’t sustainable.
Posted by: Natalie McCaffery | 12/08/2022 at 06:34 PM
This was a really interesting article - I always enjoy reading about the solutions researchers find to combat reverse causality and endogeneity, so seeing temporary security council membership used as an IV for U.S. development aid was quite cool (I had never considered temporary security council membership as a factor in aid). The fact that Milovich could use it as an IV, however, is in itself concerning, and highlights one of the problems that I've seen discussed with regards to international aid: aid has often been used as a short term instrument of political influence, rather than a long term collaboration. What's the lasting impact on human development of, say, giving a country money to build new health clinics if in two years the aid is cut and there's no money left to staff or supply them? Who do such actions really end up serving?
Surprisingly, the part of the paper that I found the most interesting was actually in the robustness checks including a country's natural resource endowment, where Milovich finds that greater resource endowments are associated with higher incomes as well as a higher MPI score. For me, this exemplifies why Milovich's approach of using the MPI to measure poverty rather than income is so justified, because it gets at the heart of what we really care about - not whether there is income, but what function that income is serving.
Posted by: El Ellenz | 12/08/2022 at 06:48 PM
This paper shows that aid works as it is intended to - it decreases multidimensional poverty by improving health outcomes, educational achievement, and infrastructure. I found it interesting that aid to countries was, overall, successful regardless of institutional quality. Another really interesting observation was the fact that resource rich nations had more multidimensional poverty and inequality.
One question I had from this paper is why income does not increase if education and health metrics do. As we have discussed in earlier classes, better health and better education should increase a person's marginal product of labor and wage. Someone who can. A. work more for longer and B. who has more education and better skills should be paid more.
Income growth alone is not a good measure of development- growth in income without any increase in health, education, or infrastructure indicates a disconnect in development that might soon turn into a development failure. Likewise, improvement in key indicators that should trigger income growth and the failure for income growth to be realized might show a disconnect somewhere.
Posted by: Gabe Miller | 12/08/2022 at 07:31 PM
I think that the approach the authors took to answering the question of does aid reduce poverty was really interesting and quite clever. It seems important to me to recognize that table 2 shows correlation rather than causation. In combination with table 5, I think that the reason why there is a reduction in income poverty and multidimensional poverty becomes much clearer. Aid seems most effective in impacting the MPI indicators; broadly education, health, and living standards. All 10 indicators saw a statistically significant relation between aid and their improvement. In what seems to be a good thing, the largest elasticity relates to education, improving both schooling and attendance. From other readings that we have done, we know that investments in education are an important piece of the development puzzle. This is where I believe we can turn our attention back to table 2, where I would be curious to see more research done on if increases in education that come as a result of foreign aid are related to a reduction in income poverty and multidimensional poverty. My hypothesis would be that if children are able to attain more years of schooling as a result of foreign aid, then as they grow older there would be a reduction in income poverty and multidimensional poverty in that household. Surely, the other indicators factor in as well, but with all the reading we have done regarding the importance of education, I’d be really curious to see if there is a relationship there, perhaps with some focus on differences between boys and girls.
Posted by: Joe Jackson | 12/08/2022 at 07:42 PM
This paper struck me as very creative in terms of its experimental design and the use of UNSC membership as a proxy for aid. The conclusion, that aid seems to improve MPI but not income, is interesting as well - I reckon this can be interpreted as aid helping to improve lives but not being a viable method of spurring self-sustaining economic growth.
I wonder how different types of aid affect long-term development. Food, health, and education spending can decrease short-term mortality (this is good) and should lead to long term improvements in human capital. We would imagine these in turn improve incomes and economic conditions, though that was not seen in this paper. Does American aid spur long-term growth and self-sufficiency? How does American aid compare with China’s influence in Africa, for example? China’s habit of funding infrastructure development does not seem as altruistic and has been criticized heavily by Westerners who see it as a scheme to ensnare developing nations in debt traps, but it provides an intriguing model. There is certainly a need for both human and physical capital spending, but perhaps the human-capital income improvements from our aid are not clear on account of the extremely deficient physical capital stock in many of the recipient countries.
Posted by: Ian Kinney | 12/08/2022 at 07:50 PM
About two years ago I read a book called "the end of poverty" by the famous Jeffrey Sachs. It was more than fascinating to read it and one of the quotes in the book was that " countries are like people. When they are sick, they need help from other countries just like people do". Since that day, I always thought of aid as a crucial factor in alleviating poverty. Reading Milovich's paper, however, made me question this knowledge a little. Not because this paper strongly contradicts Sach's claims on aid, but because it acknowledges a possible negative relationship between aid and poverty.
In as much as aid can help alleviate poverty by providing the central government additional financial support that can later be invested in the economy, the real answer to this relationship is "it depends". Just as mentioned in the article, aid sometimes comes with conditions that may later be a burden to the receiving country. So before talking about the nature of such a relationship, a lot of questions should be considered first. What is the aid? where is coming from? who is receiving it? what are we using it for?
Aid can be detrimental to alleviating poverty but for countries that struggle to finance some of their projects, I believe that thinking about aid is not really a bad decision. That is why it is important for countries to establish strong relations with each other so that the conditions of receiving aid are more of a "friendly term" rather than imposing conditions that will later damage the economic growth prospect of the receiving country
Posted by: Chadrack Bantange | 12/08/2022 at 07:58 PM
One of the key findings of this paper was that foreign aid has a meaningful effect on improving outcomes such as health, education, and living standards. However, the researchers did not find a statistical link between increased aid and reduced income poverty. Over the past few weeks we have discussed how, especially in the US, the government often fails to read into the findings of economic research. As we know, unlike the studious members of our class, policymakers are not the type to open up a 47-page paper and read the whole thing. My fear is that policymakers may look at the relationship between aid and income poverty and conclude that this aid was useless. As we wrap up the semester, one of my key takeaways is that income is a poor measure of quality of life. As Sen would put it, the goal that we should be striving for is allowing everyone to meet their capabilities.
To sort of switch gears a bit, I think it would be cool to talk in class tomorrow about the new AI bot Chat GPT and how it may replace jobs. I think there could definitely be implications on the job market outcomes we talked about on Wednesday.
Posted by: Josh Fingerhut | 12/08/2022 at 08:02 PM
As with a lot of the economic literature discussed in this course, the answer to whether or not foreign aid can help reduce poverty and increase development is that it depends. One idea from the paper which caught my attention was the following: “identification of the causal effect of aid on growth has been elusive so far due to foreign aid being endogenous in growth models”. While there is certainly a need for justification of billions and billions of dollars being spent every year on foreign aid just from the US government alone, I believe that the impacts of foreign aid are not always something that can be boiled down into plain economic models.
How can one simply place a value on the millions of lives saved and drastically improved through foreign aid? For example, the Johns Hopkins Malaria Research Institute in Zambia or developments made in education for girls in developing countries… while there is obviously a dollar amount tied to these kinds of investments, their impact can not possibly be measured.
Posted by: Will Kistler | 12/08/2022 at 08:10 PM
After reading this paper, I wonder how much of a role domestic institutions play as a confounding variable in the relationship between foreign aid and poverty. The study shows that the relationship between aid and income poverty is not statistically significant, though when compared to rate of people living in multidimensional poverty, it shows a negative relationship. If more people are living in better conditions but income poverty is not decreasing, what is keeping poor households from reaching higher wages? Could it be a government being inefficient at manipulating labor markets, while also providing programs like CCTs to improve families’ living standards? Once again, it seems like the answer to the paper’s main question is that “it depends”.
Posted by: Renan Silva | 12/08/2022 at 08:28 PM
Before I read this paper, I had an Angus Deaton moment where I said to myself, "Yes, aid does reduce poverty." However, I began to think more following my studies in POV-101 about the word..." poverty." It is important before conversing about topics such as "-isms" or broadly use societal terms (ex: sustainability) to define what we mean when we used them. Poverty is no exception. To reduce poverty means what exactly? Reduce financial burden among low-income households? Increase social acceptance of all members in rural communities? Poverty is a multidimensional issue as the authors address in the introduction. I was happy to see such a clarification, including that analyzing how increased aid impacts poverty by looking at economic growth fails to "consider other social factors that indeed affect the well-being of people, such as education, health and quality of life among others" (1). This language evokes more of a "Senian" view towards poverty, which I am fond of when conducting development economics.
The researchers' tactic for capturing the effect of aid on poverty is through the different number of years countries have been members of the United Nations Security Council (UNSC). This approach seeks to subvert the endogeneity bias between aid and poverty because of reverse causality. It was extremely interesting to learn therein that Kuziemko and Werker (2006) found the quantity of aid from the United States that a country received increased by more than 59% when serving on the UNSC, wow. My suspicion for this is such that the U.S. will pledge to give aid in exchangege for a vote from the representative from the developing country in question on the UNSC: dodging, but effective.
The basic OLS empirical results find almost all coefficients to be negative (as aid increases by 1, then income poverty or multidimensional poverty (defined by the MPI) decreases by B), and significant values in all 18 models, which is an optimistic (and hopefully expected) finding. However, these results do not hold true when checking for robustness. I think it is interesting that the decreases for MPI are significant, but gap/headcount measurements are not. The researchers conclude by suggesting the MPI be more widely adopted to measure poverty, as from this study the effect of U.S. aid would be more fully realized.
Posted by: Trip Wright | 12/08/2022 at 08:28 PM
It does not surprise me that aid is significantly beneficial in decreasing multilayered poverty. You would expect that providing the funds to establish proper education, health and quality of life. Like other people have mentioned, it is somewhat surprising that there is no statistical significance in an increase in income. We’ve talked about development and freedom as a means to an end since the beginning of class, and I would imagine that this is because aid comes more towards the early stages of the means. Providing additional resources for these countries to begin working towards tackling issues like poverty, but it doesn’t necessarily mean that providing these funds immediately helps reduce it. I think the way to think about it would be to view it statistically, where we could say that aid and MPI are correlated and MPI and income poverty are correlated, which means that income poverty and aid must be correlated. However, the correlation between income poverty and aid two doesn’t have to be a strong correlation, which may be why the author found it to be insignificant.
Posted by: Ryan Messick | 12/08/2022 at 08:30 PM
What a paper. Last one of the semester, and it was a beast. Josh suggested I have chatgtp write this blog post for me to demonstrate the effect of technology displacing labor, but I told him I have to this one myself, the right way. For me, this paper just reinforced the points made in class on Wednesday regarding the multitude of dynamics at play in reducing poverty. Opening up trade won't by itself bring people out of poverty, but it can worsen wealth inequality and even exacerbate poverty in MDCs. It was interesting to learn what areas are most impacted by foreign aid. Education is highly impacted but healthcare metrics don't seem to respond much to foreign aid. Reading this paper got me to look at who is receiving the most aid from the US in recent years, and it was quite ironic to see countries like Afghanistan, Yemen, and Iraq high on the list. These are countries where the US has been either directly or indirectly responsible for the destruction and demise that have left millions of people far worse off than they may well be had the US not mettled in their affairs. The United States can throw hundreds and millions of dollars at Yemen in the form of aid, but when they make billions and billions off of Saudi Arabian weapons sales, it is clear to see where America's motivations truly lie. On top of this, the US attributes a much smaller percentage of its GDP to foreign aid than other countries, namely those of northern Europe. The amount of aid the US offers in countries that it has played a large part in devastating for the past two decades is like offering a band aid to someone that jumped on a live grenade. I am sure the government could find a few extra dollars in their budget and allocate them to more humanitarian causes instead of throwing them at the DOD to build and buy rockets that'll fall on a hospital in a war-torn Middle Eastern country.
Posted by: Chris Ruiz | 12/08/2022 at 08:54 PM
This paper did not surprise me at all, although it was a very interesting read. I strongly believe that aid could do no good if the existing institutions in the countries receiving aid are not set up to utilize that aid effectively. I am concern about corruption, that the resources would go to the people in power, instead of those who need them the most. And even if the aid go to the poor, they are not educated enough to know how to spend it effectively. I don't think aid should come mostly in money, but in human capital, as in aid of technology, education, and human development. Perhaps the true answer is "it depends", but I would like to say that no, there is a clear correlation between how educated a population is, how good its government is, and how effectively it spends resources.
Posted by: Ngoc Le | 12/08/2022 at 10:42 PM
I honestly do not find it very surprising that US aid can help alleviate poverty in other countries. And as we discussed in class a few times in class, it does not cost much more out of our pockets to help others. Merely a 1 percent increase can impact other people so greatly in developing nations. But some people aren't considerate enough beyond their own nationality.
I feel that someone like Amartya Sen would enjoy this paper specifically because of the measures of poverty used. Economists often stick to one measure. However, headcount and poverty depth are both addressed in this paper. An argument is not only made for the use of a MPI, but for adherence to the MDGs. Poverty is further than just a lack of income, it's a lack of freedom and exposure to tragic choices which income can be a determinate of but not solely.
To further this study, I think it would be very interesting to look at the efficiency of the use of AID dollars. What do countries do with the dollars? Where are they allocated to? Are they being used efficiently and if not, how can we help them? My only worry with this kind of study is that people will take the data out of context and show that aid dollars aren't used correctly therefore we should send money to anyone.
Posted by: Eric Bazile | 12/09/2022 at 01:08 AM
I found this paper pretty upsetting, now knowing that the US gives its aid based upon what it has in its own best interest as opposed to who needs it the most. The fact “that a country received roughly 14.6% more aid from the U.S. on average during the period 1946–1999 when rotating at least one additional year onto the council” just goes to show what these people in positions of power are really after. This observation reminds me of the climate crisis, in that the people who hold political positions that could actually make a difference tend to have alternative motives in their policy making. I think that due to the results of papers like this, the way the US allocates its aid going forward should be heavily monitored and judged internally to make sure that we are always doing what is right for the world, not just ourselves. However, it is important to note that the aid the US does release is benefiting the recipient countries. When I first read that there were studies that showed that poverty was not impacted, I was quite confused. Upon reading the paper further, however, I began to understand and appreciate the differences between poverty and the variables found within the MPI. I think that this provides an example as to why some economic data does not at first make real world sense, and why further (as well as long-term) investigation is so critical to understanding development economics.
Posted by: Will Fearey | 12/09/2022 at 02:33 AM
This paper was really thorough in analyzing the relationship between these two factors. In my economic social issues class, I learned about the effects of US aid on Afghanistan, the largest recipient of US Aid. Although there are some positive effects, there are consequential outcomes as well. The US had no oversight over how the aid was utilized, allowing corruption to become rampant and new criminals to take power. The US aid in some compacity continued the previous issues. Therefore, coming into this paper, I was expecting an outcome of limited effects of aid. The following paper concluded aid reduces MPI by a small margin and has no effect on income poverty. This makes sense because aid is not supposed to just give disposable income, but rather meet the necessities of food, health, and other crucial life components. My only confusion is earlier the paper noted there were hardly any effects on either form of poverty, so I was confused as to how controlling for more variables made aid effective against MPI. Lastly, this paper never mentioned Afghanistan, which I thought was interesting since it is one of the world's largest recipients of aid.
Posted by: Kit Lombard | 12/09/2022 at 08:09 AM
To me, this paper highlights the cross-section of economic development and geopolitics. I was unsurprised to read that the majority of foreign aid doled out by the US prior to 2000 was largely politically motivated. This makes sense given what I know about the cold war. The paper made me think of the Marshall Plan, arguably the first large scale aid package in development. Historians are quick to note that the aid package wasn’t approved out of compassion or goodwill. It was to prevent a communist expansion into western Europe. A similar story plan out across the world. Both the US and USSR attempted to gain geopolitical leverage by offering aid packages to decolonizing spaces. I thought the connection to the UN security council to be fascinating. It does not surprise me that the US would use the UN as a vessel for advancing our own interests. I found it interesting that the paper only mentioned China as a permanent member of the UN security council. In my opinion, the paper neglected to state that China is one of the largest distributors of aid. Most Chinese aid is in the form of loans with below market interest rates and other investments. They are also notorious for using aid and investments as leverage. Through their Belt and Road initiative, China is playing the same geopolitical game with foreign investment that the US played in the 20th century.
Posted by: Cal Christianson | 12/09/2022 at 10:36 AM
I found this paper to be both convincing and confusing. Its findings aligned well with many of the ideas we have discussed in class. Economic development is not simply confined to GDP growth, but rather it involves many of the components of the Multi-Dimensional Poverty Index. Indeed, the paper finds that an average increase of 1% in US aid between 1946 and 1999 is significantly related to lower percentages of deprivation in education, health, and living standards from 2000 to 2014 in countries receiving aid (rotated at least one year on UN security council). I found many of the figures to be intriguing, but none more than Figure 6: Size of MPI elasticities to aid: decomposition by indicator.
I would like to discuss the author’s modeling more in class. I found it difficult to follow how they accounted for reverse causality and endogeneity issues between poverty issues and aid. What are 2SLS regressions? Additionally, I wouldn’t mind discussing their implementations of controls.
Posted by: Jack Calihan | 12/09/2022 at 12:12 PM