Charity Vs Investment: The Two Faces of Foreign Aid

foreign aid
The type of foreign aid and methods advocated for by congressional leaders vary. Nonetheless, the impulse of doing something in the face of crises is still there. However, it is not all good news. Of the wealthiest countries, the United States still ranks towards the bottom in terms of the percentage of their national budget allocated to foreign assistance.

Recent studies suggest that foreign aid faces significant challenges, especially due to the mainstream view of it as a charitable act. Following this approach to gather funding or support for foreign aid can indeed be counterproductive, and even harmful.

In a comparison study about what motivates large versus small donors, Economists Dean Karlan and Daniel Wood found that usually large donors are motivated to increase their donation when presented with the broader impact of a foreign aid initiative.

On the other hand, small donors did not pay much attention to the evidence of impact, but actually increased their donation when they were presented with individual stories that appealed to their emotions.

Karlan and Wood’s study illustrates an issue that extends to the entirety of the aid system: “the view of aid as pennies in the box.” Focusing attention on the act of giving, rather than the actual results of foreign aid takes away from the big picture.

A shift towards viewing foreign aid as an investment would be highly beneficial, there is enough evidence to suggest that this kind of investment pays off. In recent years, the flow of foreign assistance in the form of development aid and emergency relief have helped over 500 million people lift themselves out of poverty. What is more, foreign aid sponsored programs have brought basic education to millions of children in poor countries, and reduced child mortality by over 20 percent.

The benefits of foreign aid are not only visible in the results achieved abroad, but they usually find their way back to the donor nations. Industrialized countries greatly benefit from increased global stability, both in economic and security terms. Foreign aid should be taken seriously as an investment opportunity that provides dividend, sometimes in the long term, but dividends nevertheless.

– Sahar Abi Hassan

Sources: Telegraph
Photo: Economist