Economic Freedom Is More Successful Than Economic Aid


This research from Florida State University shows that economic aid is not as effective as economic freedom in promoting growth among the world's poorest nations. This may be surprising to you if you live under a rock, have never heard the bit about "give a man to fish…", or have a sufficiently short-term memory such that you never think things like "we're still giving aid to those people?" A couple of interesting points from the article:

"The demand for foreign aid is typically made in the absence of any empirical evidence that it leads to benefits for recipient nations and without asking whether there are better approaches to poverty reduction for the international community to support," Gwartney said. "This research suggests that economic freedom, rather than foreign aid, has a powerful positive impact and is a better approach."

Easterly demonstrates that foreign aid has no positive impact on economic growth in the poorest nations. His research shows that economic freedom can help lift nations out of poverty. Once economic freedom is taken into account, poor nations, far from being caught in a perpetual state of poverty, grow faster than rich nations.

"The bottom line is that the quality of life is higher for those who reside in economies that are more free," Gwartney said. "Free economies grow faster, have a cleaner environment, a lower infant mortality rate and less political corruption. The per capita gross domestic product is about 10 times the income level of the least free quartile. Further, the life expectancy of the freest group is 77 years, compared to 52 years in the least free group."

The United States tied for third this year on the level of economic freedom. One pundit commented that "the U.S. has such a high degree of economic freedom, you can even launch a company without a business model and no plan to turn a profit anytime soon, and VCs will still throw money at you. This may be a case where government intervention would actually benefit the U.S."

Ok. I made that last part up.

  • The actual site for the Index is here:

    You might also be interested in the World Bank just realsed Doing Business report, which benchmarks the business environment in countries around the world.

    The two Indexes are similiar in goals, but the first uses surveys of business men, the second looks at laws and regulations on the books.

  • Government’s do not provide foreign aid thinking it leads to less hunger or poverty. It is a political tool, and often a very successful one at that, used to support unstable governments that represent a source of political and/or military support and to build brand image both at home and abroad. In America, both parties employ the tool and understand well its purpose.