Is US Aid Good or Bad For Pakistan?
Deaton has studied poverty in India and Africa and spent many decades working at the World Bank whose charter it is to fight poverty. He argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations' governments and slowing their growth and hurting the poor in the process. Prof William Easterly of New York University has published a paper titled "Can Foreign Aid Buy Growth?" that supports the view that increase in foreign aid has reduced economic growth in Africa.
|Source: William Easterly of NYU|
In addition to being recipients of foreign aid, most African countries are also rich in resources ranging from oil and gas to diamonds and metals. Yet, their people are among the poorest in the world. Why is it? The biggest reason appears to be their corrupt leaders who pocket most of the proceeds from mining. They also siphon off a big chuck of foreign aid left after paying the expensive western consultants employed by aid agencies.
So where does Pakistan stand in this mix? Charts published by Washington Post show that Pakistan, in spite of not being a major exporter of minerals, enjoyed an average economic growth rate of about 5% from 1970 to 2008. This is about the same as India's but higher than Brazil's and Turkey's GDP growth rates. The economic growth rates for China and Korea are much higher than Pakistan's in this period.
Foreign aid to Pakistan has also been more effective in promoting economic growth than much of Africa. Even Dambisa Moyo, author of "Dead Aid" and a critic of western aid, acknowledges that the US aid for "the Green Revolution in India (and Pakistan) played vital roles in economic (re)construction" of the South Asian nations in 1960s and 1970s. The South Asian subcontinent could have faced starvation without this aid.
One of the key reasons for the success of Green Revolution was the ability of the human capital in India and Pakistan to absorb the technological knowhow that it brought along with money. Ms. Moyo offers the same reason for the success of Marshall Plan aid in Europe.
|Foreign Aid to Pakistan as Percent of GDP Source: World Bank|
US aid to Pakistan after the Green Revolution has been much smaller as percentage of the nation's GDP and much less effective. Total foreign aid to Pakistan has dramatically declined from a peak of over10% of GDP to less than 2% of GDP now, too little to impact economic growth even if it is utilized better.
The expected size and speed of the Chinese FDI of $46 billion in energy and infrastructure is much more likely to spur Pakistan's economic growth than the western aid has been in the recent past. It will put Pakistan on a path to rely much more on investment and trade than on aid or debt for its foreign exchange earnings.
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