Journal Article
The Macroeconomics of Aid

The death of aid has often been declared, and private capital flows (foreign investment, portfolio flows and remittances) as well as earnings from natural resources now far exceed official development assistance (ODA) in aggregate.

However, the recent and sharp downturn in resource earnings, the ability of ODA to fund public goods that private capital cannot, and the difficulty of small and fragile economies in attracting private capital, all imply that the need for aid might not be as dead as its critics believe. Moreover, even strongly growing economies (including those where aid has helped that growth) find it difficult to diversify their economies, achieve inclusive growth and adapt to the threat of climate change.

There are large unmet needs in infrastructure (especially for climate resilience and for poor communities) and in human capital formation (especially in the education and health of the poor). The cost of meeting these challenges far exceeds domestic revenues and external private capital flows.