In Dicta

Saturday, July 09, 2005

Aid to African nations

"President Bush and the leaders of seven other major industrialized nations pledged Friday to double the amount of aid for Africa in five years and substantially raise it for other poor countries, capping a summit conducted in what British Prime Minister Tony Blair called the "shadow of terrorism."

This is mostly good news. Poor countries do need aid from higher income nations in order to build infrastructure and grow.

"The aid accord was a victory for Blair, the summit's host, who has made helping Africa a priority of his government. Some activists complained that the plan to increase aid for Africa to $50 billion a year by 2010 was too slow, but Blair won praise from the Irish rock star Bono and other celebrities who staged concerts in 10 cities around the world last weekend to pressure summit participants on behalf of the world's poor."

However, we should also note that in economics, there is something known as a "crowding out" effect, where this aid may raise prices domestically (in the receiving nations), hurting the export industries. Also, donor nations tend to "suck up" talented people working in those countries for these projects, which limits their work in domestic firms.

In the end, aid is good. But we must be vigilant as to how it is spent, so that it doesn't produce inflation and short-term gains for receiving nations instead of a lasting improvement in their conditions.

(Via The Washington Post.)

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