| What Aid Can Do?
Skarbek, David B.; Leeson, Peter T.
Cato Journal, Fall 2009, v29, #3, pp391-398
"Under normal conditions, devoting more resources to X's production produces more X. This follows from the nature of the physical world, which positively relates quantities of outputs to quantities of inputs used in their production. In principles of economics classes, it is common to highlight that this relationship has nothing to do with the economic problem. Solving the economic problem determines whether a country's economy develops. It is strange, then, that professional economists have had trouble distinguishing the positive relationship between inputs and outputs from solving the economic problem when it comes to evaluating foreign aid. The purpose of this article is to make this distinction, and in doing so to clarify what aid can and cannot do. Economic progress requires economic efficiency: resource allocations that maximize resources' value to society. Economic efficiency improves when economic actors move resources from less-valued uses to more-valued ones."
David B. Skarbek is a doctoral candidate in the Department of Economics at George Mason University. Peter T. Leeson is BB&T professor for the Study of Capitalism at the Mercatus Center, George Mason University.
Go to the article at:
http://www.cato.org/pubs/journal/cj29n3/cj29n3-2.pdf
H2/01-10 posted January 4, 2010
|
