Under President George W. Bush, America has doubled its development assistance to $19 billion in 2004, including tripling its assistance to sub-Saharan Africa since 2000. It has expanded access to the U.S. market through the African Growth and Opportunity Act (AGOA). The U.S. is the world's largest humanitarian aid donor, providing $3.3 billion in 2003. It also is the world's largest source of bilateral and multilateral support to combat HIV/AIDS, malaria, and other infectious diseases, including $2.4 billion in international HIV/AIDS programs.[2]
Yet the U.S. is often criticized for not providing enough resources for development. The basis for this criticism is the theory that if only aid flows increased, developing countries would achieve economic growth and development. Economic analysis and the historical record do not support this reasoning.
The United States and other donor nations have spent over $2.3 trillion on bilateral and multilateral development assistance (in 2003 dollars) since 1960 to help poor countries attain economic growth and prosperity-about a fourth of it in sub-Saharan Africa.[3] Few recipients have achieved substantial improvements in per capita income, and in no case has a development success story been clearly attributable to economic assistance. The evidence provided by numerous studies indicates that this failure is due not to insufficient funds, but to the poor policies of recipient countries.
The Disappointing History of Development Assistance
There are 92 developing countries that are in the 2006 edition of the Index of Economic Freedom, co-published annually by The Heritage Foundation and The Wall Street Journal, and for which per capita gross domestic product (GDP) data from 1980 to 2004 are available.
Of these, 32 averaged zero or negative compound annual growth in real per capita GDP.
Another 23 averaged marginal compound annual growth between 0 and 1 percent.
And only 37 averaged compound annual growth in real per capita GDP over 1 percent (China and Equatorial Guinea averaged over 8 percent).
Despite hundreds of billions of dollars in development assistance, individuals in developing countries averaged a disappointing 0.94 percent in compound annual growth in per capita GDP from 1980 to 2004.
Sub-Saharan Africa performed even worse than this dismal average.
No other region of the world is in more dire need of development than sub-Saharan Africa. Sub-Saharan Africa's 719 million people face tremendous challenges, including the world's highest incidence of HIV/AIDS, deep poverty, unemployment, political instability, and a host of related problems.[4] For instance, per capita food production has fallen every year since 1962, and seven out of 10 Africans are extremely poor or on the verge of extreme poverty.[5] The total GDP in constant 2000 U.S. dollars for those 48 countries in 2004 was $385.6 billion (approximately the same GDP as Michigan or New Jersey in a region nearly three times the size of the United States in land area and population).[6]
Between 1980 and 2004, the United States provided $37.7 billion (in 2003 dollars) in development assistance to the 48 countries in sub-Saharan Africa in an effort to address the region's problems and spur economic growth.[7] All development assistance (bilateral and multilateral) to sub-Saharan Africa from 1980 to 2004 totaled $455.9 billion (in 2003 dollars), of which aid to the individual countries totaled more than $435.3 billion (in 2003 dollars).[8] (See Table 1.)
The aid investment in sub-Saharan Africa has been enormous, particularly when the relatively small sizes of the recipient countries' economies are taken into account. On average, sub-Saharan Africa received official development assistance equivalent to 6.3 percent of the region's GDP annually for 24 years. (See Chart 1.) To put this in perspective, if all of the aid spent over that period were gathered together in today's dollars and simply handed out to the 719 million people of sub-Saharan Africa, per capita GDP would increase by about $600- more than doubling the region's per capita GDP.
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Despite this assistance, however, the region's economic growth has been extremely erratic, as illustrated in Chart 1. What is clear from the chart is that increased aid flows do not seem to be associated with increased economic growth.
Table 1 provides additional detail. There are 47 sub-Saharan African countries for which real per capita GDP data are available for the period between 1980 and 2004. These 47 countries averaged compound growth in per capita GDP from 1980 to 2004 of 0.33 percent.
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Of these, 23 averaged zero or negative compound annual growth in per capita GDP.
Another 9 averaged marginal compound annual growth between 0 and 1 percent.
And only 15 averaged compound annual growth in per capita GDP over 1 percent (Botswana and Mauritius averaged over 4 percent, and Equatorial Guinea averaged over 8 percent).
In other words, about half the countries in sub-Saharan Africa experienced negative growth in real per capita incomes despite hundreds of billions of dollars in aid invested over the past two decades.[9] Instead of desperately needed economic growth, sub-Saharan African as a region saw a decline in per capita GDP from $575 in 1980 to $536 in 2004 (in 2000 dollars).[10]
What are the implications for poor growth? To reach upper-middle-income status (gross national income per capita of $3,256 or higher), the average sub-Saharan African with an income of $536 would have to experience real compound growth in per capita income of over 5 percent for over 35 years.[11] To become as wealthy as the United States, the average country in sub-Saharan Africa must grow at 5 percent per year for nearly 90 years. Quite simply, without high, sustained levels of economic growth, sub-Saharan Africa will not close the gap with the developed countries.
The poor growth record undermines improvements in human development as well. World Bank estimates indicate that sub-Saharan Africa will require annual growth of 7 percent to halve severe poverty-one of the United Nations' indicators for the Millennium Development Goals (MDGs)-by 2015.[12]
Some have argued that this lack of growth is due to a paucity of aid and call for a "Marshall Plan" for Africa modeled after the effort to rebuild post- World War II Europe. But an objective look at the Marshall Plan reveals that, in constant dollars and in terms of aid to GDP, sub-Saharan Africa has received a Marshall Plan several times over.
As shown in Table 1, the United Kingdom was the largest single recipient of Marshall Plan assistance, receiving the equivalent of 20 percent of its 1950 GDP in assistance between 1946 and 1952 (in constant 1950 dollars).[13] The largest single annual disbursement in 1947 was equivalent to 11.5 percent of its GDP in 1950. In 2004, 23 countries in sub-Saharan Africa received more net assistance in relation to GDP than the U.K. did in 1947 under the Marshall Plan. Only Nigeria and South Africa have received less net development assistance between 1980 and 2004 as a percent of 2004 GDP than the U.K. did under the Marshall Plan.
With the support of donors and private-sector innovations in medicine, science, and agriculture, sub-Saharan Africa has experienced improvements in literacy, school enrollment, infant mortality, and life expectancy (although it has decreased since its 1990 high of 50 years to 46 years due to AIDS and the higher incidence of other diseases such as malaria). However, in most cases, these improvements have fallen short of advances elsewhere in the developing world because poor economic growth erodes the resources governments and individuals have to invest in improving these indicators. While foreign assistance may be able to finance short-term improvements, these achievements are transitory without economic growth to sustain and improve upon them.
The Need for Economic Freedom
While it is impossible to say how sub-Saharan countries would have done without receiving economic assistance, the record discussed above clearly shows that large disbursements of development assistance did not lead to the economic growth in sub-Saharan Africa that many aid advocates envisioned. However, achieving high per capita economic growth is possible even in low-income countries. This fact is illustrated by successful development by countries in East Asia. Per capita GDP in East Asia and the Pacific was lower than in sub-Saharan Africa in 1960 but has since far eclipsed sub-Saharan Africa.
How did this happen? Economic studies indicate that sound economic policies, the rule of law, and good governance are the key.
Over the past decade, economic studies have concluded that economic freedom, good governance, and the rule of law are key drivers in promoting economic growth and reducing poverty. A 1997 World Bank analysis of foreign aid found that, while assistance positively affects growth in countries with good economic policies (free markets, fiscal discipline, and the rule of law), countries with poor economic policies did not experience sustained economic growth regardless of the amount of foreign assistance received.[14]
Other studies have reached similar conclusions, maintaining that aid can increase economic growth in certain circumstances.[15] These studies conclude that aid may help the poor to cope temporarily with some of the consequences of poverty but that countries beset by a weak rule of law, corruption, heavy state intervention, and other policies that retard growth will not experience increased economic growth even with greater amounts of economic assistance. Subsequent studies question whether aid could spur growth even in good policy environments.[16]
Yet many advocates of aid ignore this research and evidence. The U.N. Millennium Project, commissioned by U.N. Secretary-General Kofi Annan in 2002 to assess what is necessary to meet the MDGs, advocated "a big push of basic investments between now and 2015 in public administration, human capital (nutrition, health, education), and key infrastructure (roads, electricity, ports, water and sanitation, accessible land for affordable housing, environmental management)."[17] Jeffrey Sachs, special adviser to the U.N. Secretary-General on global poverty, reaches similar conclusions in The End of Poverty, which asserts that developed countries must transfer "about $100 [billion] to $180 billion per year for the period 2005 to 2015" to meet the MDGs and that "Africa needs around $30 billion per year in aid in order to escape from poverty."[18]
Several recent economic studies, however, dismantle the arguments used by Sachs and the U.N. for increased aid. Former World Bank economist William Easterly specifically analyzed the evidence on whether increased aid or investment can spur growth:
The classic narrative-poor countries caught in poverty traps, out of which they need a Big Push involving increased aid and investment, leading to a takeoff in per capita income- has been very influential in development economics. This was the original justification for foreign aid…. Evidence to support the narrative is scarce…. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs do not seem strongly associated with aid or investment in the way the standard Big Push narrative would imply.[19]
A 2005 study by two economists at the International Monetary Fund (IMF) corroborates this conclusion, finding that their research yielded "no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others."[20] The same authors published a subsequent study that concluded:
We examine one of the most important and intriguing puzzles in economics: why it is so hard to find a robust effect of aid on the long-term growth of poor countries, even those with good policies…. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in a decline in the share of labor intensive and tradable industries in the manufacturing sector. We find evidence suggesting that these effects stem from the real exchange rate overvaluation caused by aid inflows. By contrast, private-to-private flows like remittances do not seem to create these adverse effects….[21]
A Better Strategy for Development. A World Bank study found that increased integration into the world economy from the late 1970s to the late 1990s led to higher growth in income. The more integrated countries achieved 5 percent average annual growth in per capita income during the 1990s.[22] In contrast, the non-globalizing nations experienced average growth of only 1.4 percent during the 1990s, and many experienced negative growth rates.
A related World Bank study found that increased growth resulting from expanded trade "leads to proportionate increases in incomes of the poor" and that "globalization leads to faster growth and poverty reduction in poor countries."[23] Easterly concurs in his 2005 study, finding "support for democratic institutions and economic freedom as determinants of growth that explain the occasions under which poor countries grow more slowly than rich countries."[24]
Why would economic freedom, globalization, and the rule of law contribute to economic growth? Rigid labor policies, high regulation and bureaucratic red tape, high official taxation, corruption, and trade barriers are obstacles that create a drag on economic growth. The greater the level of government intervention in the economy, the lower the probability that individuals, investors, and businesses will be able to prosper because costs on private economic activity become higher. This leads talented people to leave the country for more advantageous opportunities or to engage in activities that do not contribute to GDP (such as government service) and enrich themselves through rent seeking and corruption. The practical result is that countries with anti-market economic policies and bad governance are more likely to be poor, to be isolated from the international economy, and to find it more difficult to escape that poverty.[25]
The Heritage Foundation has been analyzing the effect of economic freedom on development for many years. Our work indicates that economic freedom and the rule of law played a key role.
The central product of this research is the Index of Economic Freedom, co-published annually by The Heritage Foundation and The Wall Street Journal. The Index analyzes 50 economic indicators in 10 independent factors: trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation, and informal market activity. Those 10 factors are graded from 1 to 5, with 1 being the best score and 5 being the worst score. Those scores are then averaged to give an overall score for economic freedom. Countries are designated "free," "mostly free," "mostly unfree," and "repressed" based on these overall scores.
This is not to say that there is no role for government in development or that all government intervention is counterproductive. On the contrary, the Index defines economic freedom as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." (Emphasis in original.) Thus, the Index clearly recognizes that without some government, economic growth and development is impossible.
For instance, a government can greatly facilitate economic growth by enforcing an impartial and reliable rule of law. A rule of law with these characteristics serves as the supporting structure of an economy, without which it cannot operate efficiently. It ensures entrepreneurs that (1) policies will have lasting power and can be changed only through transparent, widely recognized procedures, permitting an environment conducive to long-term investment; (2) the rules will apply equally to all rather than exempting some or being subject to change at the behest of the powerful; and (3) they will have legal recourse if policies unlawfully affect their activities, thereby reducing the risk of investments.
On the other hand, an arbitrary, overly onerous, or poorly enforced rule of law can prove a very strong deterrent to growth by creating opportunities for corruption or increasing the costs of complying with the law to the point where economic activity is discouraged or leaves the formal sector. In other words, governments must be cautious that efforts to create and maintain a secure environment for economic activity do not become excessive and thereby impede such activity. The Index offers an objective means for weighing the economic policies of a government in pursuit of this goal.
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One inescapable conclusion from this research is that
economically free countries are associated with higher
per capita incomes than countries with less free economies.
Chart 2 illustrates this relationship. As shown in Chart 3,
"free" countries on average have a per capita income (in
purchasing power parity) over twice that of "mostly free"
countries; "mostly free" countries have a per capita income
more than three times that of "mostly unfree" and "repressed"
countries.
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Chart 4 ranks the graded countries according to the improvement in economic freedom between the 1997 Index and 2006 Index.[26] Not only is a higher level of economic freedom clearly associated with a higher level of per capita GDP, but GDP growth rates increase as a country's economic freedom score improves.[27] The countries represented in the left-hand bar were most improved, and those in the right bar were the least improved. Average growth rates across the 10 years of changes were then computed for the countries in each bar or group. In general, the more countries improved their economic freedom, the higher the average economic growth they achieved. In other words, over the past decade, countries that have most improved in terms of economic freedom have enjoyed the most progress toward prosperity.
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Table 2 lists the sub-Saharan African countries graded by the Index along with their current score and the net change in score since they were first graded. Although average levels of economic freedom in sub-Saharan Africa remain poor and the region remains the world's least free economically, no other region has made greater strides in economic freedom than sub-Saharan Africa. The median economic freedom score for sub-Saharan Africa improved by 0.37 point from the 1997 Index-more than any other region-and the improvement in the average score followed only North America and Europe.[28] In the 2006 Index, economic freedom in 25 sub-Saharan Africa countries improved, and it declined in 12 countries. Regrettably, these gains have been from relatively low levels of economic freedom undermining the impact of these improvements.
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As illustrated in Chart 5, "mostly free" economies in sub-Saharan Africa graded in the 2006 Index averaged a per capita GDP (in purchasing power parity) over twice that of "mostly unfree" economies, which in turn averaged a per capita GDP about $700 greater than "repressed" economies.[29]
Similar to the trend for all countries, Chart 6 illustrates that those sub-Saharan African countries that improved their economic freedom score experienced higher GDP growth rates. As with all countries, African countries that improved the most saw the greatest improvement in GDP growth rates. While short-term trends are always suspect, increased growth rates in sub-Saharan Africa in recent years may indicate returns on improved economic freedom.[30]
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Botswana and Mauritius are good examples of these trends. Both countries achieved a compound average growth in per capita GDP from 1980 to 2004 of 4.62 percent and 4.29 percent, respectively. Not surprisingly, these countries adopted economic freedom early and reaped the rewards. Both nations have been rated "mostly free" economies for most of the time that the Index has graded them. Botswana is currently the freest economy in sub-Saharan Africa, and Mauritius is sixth in the region.
Trade Openness
Much attention has been given to the need for developed countries to lower trade barriers to developing country goods. Such attention is merited. A key component of economic freedom is the freedom to trade. Increased economic freedom in trade involves lower trade barriers in developing and developed countries alike, leading to lower costs and greater efficiency as entrepreneurs determine the activities in which they have a global or regional comparative advantage. These gains translate into increased economic growth and per capita income.
Despite the claims of many anti-globalization groups, the evidence indicates that increased trade and globalization does not lead to a "race to the bottom." On the contrary, global per capita GDP and global trade as a percent of global GDP have been increasing in virtual lockstep since 1960. (See Chart 7.)
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But what about claims that trade hurts workers? A World Bank study found that "In the long run workers gain from integration [with the world economy]. Wages have grown twice as fast in globalized developing countries than in less globalized ones…."[31] And the environmental damage caused by trade? "Despite widespread fears," the study continued, "there is no evidence of a decline in environmental standards. In fact, a recent study of air quality in major industrial centers of the new globalizers found that it had improved significantly in all of them."[32] Same story on poverty: Globalization is good for the poor. A related World Bank study found that increased growth resulting from expanded trade "leads to proportionate increases in incomes of the poor" and that "globalization leads to faster growth and poverty reduction in poor countries."[33]
Quite simply, trade liberalization brings far more benefits than costs and is a key aspect of economic growth and development. However, the focus on developing and developed country trade is only part of the equation. The World Bank notes:
[I]n addition to facing high barriers in [Organisation for Economic Co-operation and Development] countries, developing countries impose high barriers on trade with one another, and the incidence of these intra-developing country trade restrictions is higher for poorer countries- just as the incidence of OECD trade restrictions is higher for poorer countries.[34]
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Indeed, the U.S. Department of State reports that "Seventy percent of tariffs paid by developing countries go to other developing countries."[35] This is particularly true for sub-Saharan Africa, which is one of the world's most protectionist regions. According to Marian Tupy of the Cato Institute, "nontariff protection in the poorest countries of SSA [Sub-Saharan Africa] is four times greater than nontariff protection in rich countries. Strikingly, trade liberalization within SSA could increase intra-SSA trade by 54 percent and account for over 36 percent of all the welfare gains that SSA stands to receive as a result of global trade liberalization."[36]
To measure a country's willingness to interact with the global economy, The Heritage Foundation developed a Trade Openness Index from a subset of four of the 10 factors used in the Index of Economic Freedom: trade policy, capital flows and foreign investment, property rights, and regulation. These four factors were deemed most influential over decisions to engage in international transactions.[37]
Not surprisingly, more open economies on average have higher levels of trade as a percentage of GDP. Analysis of the relationship between trade openness and per capita GDP (in purchasing power parity) reveals that "open" economies have an average per capita GDP nearly twice that of "mostly open" economies, "mostly open" economies have a per capita GDP more than three times that of "mostly closed" economies on average, and "mostly closed" economies have a per capita GDP nearly twice that of "closed" economies.
Unfortunately, sub-Saharan Africa as a region has missed out on the benefits of trade. Trade as a percentage of GDP in sub-Saharan Africa has increased only marginally since 1960. Taking the poor economic growth of sub-Saharan countries over that period, this means that trade has been largely stagnant for decades. As a result, the region has fallen behind in international trade and has seen its percentage of world trade dwindle to less than 2 percent of global trade. While the region as a whole has done poorly in terms of trade, individual nations in sub-Saharan Africa have approached trade differently.
The relationship between trade openness as measured by the Index of Economic Freedom and higher per capita GDP (in purchasing power parity) holds for sub-Saharan Africa. "Open" economies (Botswana is the only one) in sub-Saharan Africa have a per capita GDP about one and a quarter times that of "mostly open" economies. "Mostly open" economies have a per capita GDP more than three times that of "mostly closed" economies, which in turn have a per capita GDP a bit less than twice that of "closed" economies.
Thus, developing countries and developed countries alike need to reduce barriers to trade in the Doha Round of World Trade Organization negotiations if the benefits of trade to economic growth and development are to be fully realized.
Lessons for Development
Experience demonstrates that simply providing assistance will not spur economic growth and development. On the contrary, indiscriminant distribution of assistance may actually hurt development prospects. According to IREN Kenya, a Kenyan think tank:
The combination of massive aid increases and uneven or ineffective policy conditionality has ensured the sustainability of policies that would have been disciplined by market forces. Aid has had a powerful effect on state institutions in Africa, simultaneously sustaining them and stripping them of decision making-power…. Public aid has been used as a substitute for private capital and has provided support to African governments to survive the economic crisis while minimizing policy change…. [Government-to-government assistance has also] played a major role in eroding political and economic entrepreneurship in Africa.[38]
The lessons from nearly five decades of development efforts indicate that sub-Saharan Africa needs policy change far more than increased aid. While there may be a role for assistance and donor nations, the key to development lies in the hands of governments in developing countries. For development to occur, governments must remove obstacles preventing their people from seizing opportunities to benefit them, their families, and their communities. This is best done by adopting the policies that bolster economic freedom, good governance, and the rule of law-policies that are the key to economic growth and development with or without foreign assistance.
The fact that development lies predominantly in the hands of developing country governments does not mean that there is no role for developed countries. Specific policy changes that can help include:
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Focusing assistance on countries with good economic policies and institutions. By focusing on rewarding good performers, donor nations can help to encourage policy reforms that are associated with increased economic growth and development and reduce chances that aid will be squandered. An example of this approach to aid is the United States' Millennium Challenge Account (MCA).
The MCA makes assistance available only to countries "that govern justly, invest in their people and encourage economic freedom" as determined by their performance on 16 specific indicators.[39] If a country bests the average in at least half the indicators in these three general categories, it becomes eligible to receive MCA grants. Failure to meet that standard excludes the country from aid consideration for that year.[40]
This provides incentives for reform among candidate countries. For instance, one of the economic indicators used by the MCA to determine eligibility is the number of days it takes to open a business. According to the World Bank, which is the source for this indicator, establishing a business in sub-Saharan Africa took 74 days on average in 2004 (the MCA's first year). In 2006, the average had fallen to 63 days and, out of the 31 countries measured in both 2004 and 2006, 17 countries reduced the number of days required versus only five that increased the number of days required.[41] Moreover, six countries not measured in Doing Business in 2004 provided the World Bank the data necessary to conduct their measurement in the 2006 edition. Thus, the opportunity to receive MCA grants is both providing an incentive for countries to improve their business environment and encouraging transparency.
Differentiating among potential recipients and denying aid to countries that fail to demonstrate a commitment to good policies and awarding it based solely on objectively measured, pre-existing policies has potential for improving the effectiveness of foreign assistance, which has long been hindered by the failure of aid recipients to adopt policy change to remove obstacles to economic growth.[42]
Reducing trade barriers and subsidies. While developed countries generally maintain relatively low average trade barriers, their highest trade barriers tend to apply to the goods that developing countries export, such as textiles and agricultural products. They also tend to provide subsidies disproportionately on goods that compete with developing country products, particularly agricultural products.
The World Bank and Oxfam estimate that trade barriers erected by developed countries cost developing countries $100 billion a year-roughly twice the amount they receive in official development assistance.[43] Non-tariff barriers that distort trade also pose significant problems. For instance, agricultural subsidies encourage production and put downward pressure on agricultural prices, which makes it difficult for developing countries to compete. Michael Moore, former Director-General of the World Trade Organization, estimated that removing all tariff and non-tariff barriers "could result in gains for developing countries in the order of $182 billion in the services sector, $162 billion in manufactures and $32 billion in agriculture."[44]
The U.S. has partially addressed these trade distortions through the African Growth and Opportunity Act, which provides duty-free access to nearly all (in 2004 over 98 percent of imports from AGOA countries entered the U.S. duty free) goods exported from African countries through 2015-provided they have established or are making progress toward market-based economies, enhanced rule of law, representative governance, lower barriers to U.S. trade and investment, improved human rights, and other goals.[45] AGOA contributed immediately to a strong increase in two-way trade between the U.S. and sub-Saharan Africa from $19.6 billion 1999 to $29.4 billion in 2000, including a 67 percent increase in African exports to the U.S.[46] U.S. merchandise imports from AGOA-eligible countries continued to increase by 88 percent to $26 billion from 2003 to 2004. Much of this increase is due to higher oil prices, but even non-oil imports increased 22 percent over 2003.[47] Two-way trade in goods between the U.S. and sub-Saharan Africa increased 37 percent from 2003 to 2004 to $44.4 billion.[48] The European Union has also partially opened its market through its "Everything But Arms" initiative.
However, full realization of the benefits of free trade for development requires a broad-based multilateral effort to remove tariff and non-tariff barriers among developed and developing countries alike. Successful negotiation of the Doha Round, including eliminating applied tariffs, reducing non-tariff barriers by half, and eliminating agricultural production and export subsidies, could result in substantial gains for developing countries. Indeed, according to the World Bank:
Deep trade reform could generate large global gains. Freeing all merchandise trade and abolishing all trade-distorting agriculture subsidies would boost global welfare by $80-280 billion a year by 2015…. [R]esearch suggests that developing countries would obtain about one-third of the global gain from freeing all merchandise trade, well above their one-fifth share of global GDP.[49]
But the World Bank also cautions that improvements from trade liberalization are "conditional on further liberalization by developing countries."[50] Trade liberalization needs to be adopted in conjunction with other policies linked to improved economic growth.
Conclusion
Foreign assistance alone cannot increase economic growth and development. Achieving these objectives requires the political will to implement policy change to expand opportunities and remove barriers to growth. Developed countries can assist development by encouraging good policy and opening their markets to developing country products, but success in development ultimately depends on developing countries' adopting and implementing policies that promote economic freedom, good governance, and the rule of law. Only then will developing countries be on the path to economic development.
Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. Anthony Kim, a Research Associate in the Center for International Trade and Economics, also contributed to the research for this paper, which was presented at the Third Africa Resource Bank (ARB) meeting hosted by the Inter Region Economic Network (IREN Kenya) and held in Kenya on November 27-30, 2005. The November presentation has been updated to incorporate more recent aid and economic growth data and country scores from the 2006 Index of Economic Freedom.
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