The Kiwi example

Bill Easterly uses the diversification of New Zealand foreign aid spending from 1999 to 2008 as exemplar of what not to do.

An interesting case in point is New Zealand aid. Before a major reform, its largest program was giving college scholarships to poor Pacific Islanders. I don’t have any decisive evidence on how good they were at doing this, so this example is only suggestive, but a priori a scholarship sounds like a relatively effective way to help somebody help themselves — the ideal formula in aid. Then the “SHOULD” nannies took over, and now the tiny New Zealand budget is divided among ALL the fashionable causes in development. (The picture below shows the breakdown between 37 possible sectors in foreign aid.)

As the New Zealand example shows (and it is characteristic of most aid agencies), the SHOULD criteria defeats the whole idea of specialization, and even tiny agencies wind up giving 5 percent of the budget each to 20 different causes. Since there are fixed overhead costs of operating in a sector (like employing sector specialists), this means that a lot of the aid budget is going to be wasted on overhead costs.

I know basically nothing about New Zealand's foreign aid budget. The 2008 picture looks pretty fragmented.  In 1999, about 8 areas got three quarters of total funding; it looks like that percentage is now split among about a dozen.

The usual argument for individuals is that you should only give to one charity: there has to be some charity that does the most good as you see things, and your dollars are unlikely to have anything but marginal effects. Since you're not pushing your target charity downwards along its marginal benefit curve, just stick with one. In country aid, that'll be different, and especially for a country like New Zealand that takes on a regional mission in a bunch of tiny countries. New Zealand's spending could easily become inframarginal on all kinds of projects. If the foreign aid budget increased from 1999 to 2008, it's very plausible that the marginal student for a scholarship just wasn't worth the investment relative to other projects our foreign aid folks could be pursuing. Again, though, I know nothing about the actual make-up of the budget.

Growthgate and Climategate

William Easterly notes parallels between climate research and research on economic growth.

There were three steps in the the great History of Evolving Cluelessness:

1. Economists spent the past two decades trying every possible growth determinant in sight. They found evidence for 145 different variables (according to an article published in 2005). That was a bit too many in a sample of only about one hundred countries. What was happening is there would be evidence for Determinants A, B, C, and D when tried one at a time to explain growth. But the evidence for A disappeared when you also controlled for some combination of B, C, and D, and/or vice versa. (Interestingly enough, foreign aid never even merited inclusion in the list of 145 variables.)


2. The Columbia economist Xavier Sala-i-Martin and co-authors ran millions of regressions on all possible combinations of 7 variables out of the many possible determinants of growth. Skipping a lot of technical detail, they essentially averaged out the millions of regressions to see which determinants had evidence for them in most regressions. There was hope: some were robust! For example, the idea that malaria prevalence hinders growth found consistent support.


3. This new paper by Ciccone and Jarocinski found that every time the growth data are revised, or if the sample is changed to another equally plausible one, the results vanish on the “robust” variables and new “robust” variables appear. Goodbye, malaria, hello, democracy. Except the new “robust” determinants are no longer believable if minor differences between equally plausible samples changes what is robust. So nothing is robust.

There are two possible ways to describe what had happened over the past two decades:

1. The growth research was at least partially fraudulent, in that we researchers were searching among many different econometric exercises till we got the “determinants of growth” we wanted all along.


2. There was a good faith effort by us researchers to test different theories of growth, which led to some results. We didn’t realize until later that these results were not robust.

Description (1) would be a “GrowthGate,” but since so many people would be guilty (of “data mining”), and since we really can’t tell for any individual study or researcher whether it was (1) or (2), “GrowthGate” never became a story.

It's rather worrying if the Sala-i-Martin variables prove non-robust across new iterations of the Penn World Tables. Minor errors in data seem to blow the technique apart.

Sachs smackdown

Jeff Sachs last week delivered an ugly attack on Bill Easterly on The Huffington Post in which he accused Easterly of seeking to pull the ladder up behind him and deny aid to folks in Africa. A nasty cheap shot, and without foundation.

Easterly replies today, rebutting Sachs' accusations using bits of Easterly's own work previously cited by Sachs.

Sachs accuses me of such a hard heart as to deny "$10 in aid to an African child for an anti-malaria bed net." Sachs offers: "Here are some of the most effective kinds of aid efforts: support for peasant farmers to help them grow more food, childhood vaccines... roads, .. safe drinking water...."

Sachs likes a lot more another writer whom he quoted in his book Common Wealth:
"Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines,... the improved seeds, the fertilizer, the roads, the boreholes, the water pipes...." Wait, that was me!

Sachs was earlier quoting from my book, The White Man's Burden, which far from wanting to deny an African child bed nets, denounces the tragedy of aid impunity, in which "The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families."

Sachs complained that "most Americans know little about the many crucially successful aid efforts, because Moyo, Easterly, and others lump all kinds of programs -- the good and the bad -- into one big undifferentiated mass." Sachs again prefers another writer whom he quoted in Common Wealth: "Foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries."

You guessed it -- that was me again, illustrating how aid COULD work if only aid agencies were accountable for their actions.

Easterly then goes on to highlight some of the cases of "aid impunity" against which he's been fighting.

Easterly's Aid Watch is on my RSS reader; add it to yours if you haven't.