Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The Why and How of Foreign Aid
Journal of Economic Perspectives
(pp. 159–84)
(Complimentary)
Abstract
Foreign aid has become a melting pot of motivations and policies, where differently motivated actors often converge on recommended policies while the similarly motivated diverge. Breaking down the "why" and the "how" can illuminate real tensions and reveal false ones. The "why" asks which problems to tackle and who benefits: the recipient, the donor through economic, political, or soft-power returns, or everyone through global public goods. The "how" asks which strategy most cost-effectively addresses a chosen problem. Evidence is central to the "how": Use it where it exists, produce it where it does not. In particular, approaches that improve state capacity to use and generate evidence can satisfy multiple objectives: strengthen recipient countries, benefit donors, and provide a global public good of knowledge. Ultimately, the "how" is not a linear process, but rather an iterative one of learning, adopting, adapting, repeating, and then sharing so others can learn as well.Citation
Karlan, Dean. 2026. "The Why and How of Foreign Aid." Journal of Economic Perspectives 40 (4): 159–84. DOI: 10.1257/jep.20251476Additional Materials
JEL Classification
- D64 Altruism; Philanthropy; Intergenerational Transfers
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F35 Foreign Aid
- H87 International Fiscal Issues; International Public Goods
- O19 International Linkages to Development; Role of International Organizations