Introduction

Used loosely, the term “foreign aid” might be used for any assistance that crosses national borders, including private philanthropy, Christian mission work, and other NGO projects. In most policy discussions, however, foreign aid has a more narrow meaning: loans, grants, or goods transferred from national governments or intergovernmental institutions (like the World Bank) to another country, typically in the developing world. This foreign aid—also called “official development assistance”— is the subject of this essay.

World governments have spent about $2.3 trillion on foreign aid since 1960, according to the Organization for Economic Co-operation and Development. The amount that governments have spent annually on foreign aid has risen fourfold in real terms over that time period. Roughly $1 trillion of this spending went to Africa, which continues to receive about $50 billion annually.

Annual foreign aid reached a record high in 2023, peaking at $223.7 billion, before falling by about $10 billion in 2024. In 2024, the top five contributors of foreign aid among OECD nations included the United States ($63.3 billion), Germany ($32.4 billion), the United Kingdom ($18 billion), Japan ($16.8 billion), and France ($15.4 billion).

Sources: OECD (2025)

One major aspect of foreign aid spending is providing relief to countries during times of natural disaster, epidemic, and war. The recent surge in foreign aid spending since 2019, for instance, is largely due to the conflicts in Ukraine, Gaza, and other parts of the world. The end goal of this function of foreign aid—providing temporary relief to afflicted peoples—is fairly uncontroversial, even as some of this money and assistance is captured by corrupt officials.

The efficacy of another function of foreign aid is more controversial, however: economic development. Through a variety of grants, loans, infrastructure projects, consulting, and other services, this assistance aims to create a functional and broad-based economy. Unfortunately, the results of this kind of foreign aid have been mixed at best. Research from the National Bureau of Economic Research, for instance, finds “little robust evidence of either a positive or negative relationship between aid inflows and economic growth”. The contrast between the regions of East Asia and sub-Saharan Africa is striking: nations such as China and South Korea have developed rapidly since 1970, while most African economies have stagnated—despite receiving far more aid.

The contrasting experience of African nations helps further illustrate the point. Botswana’s economy grew about twentyfold from 1950 to 2025, while many other countries in the same region, such as neighboring Zimbabwe, experienced stagnation or even negative growth.

Source: World Bank

There is little substantial difference in the amount of aid received by both countries to explain the divergence. Except for one spike in 2008, Botswana and Zimbabwe have received similar amounts of ODA per capita over the years—about $50 per person annually between 1990 and 2023.

Source: Our World In Data

Instead, Botswana’s progress was more likely due to its relatively stable rule of law. The World Justice Project (WJP) Rule of Law Index consistently ranks Botswana highly, especially relative to its African peers. In 2024, the Index ranked Botswana 51st among 142 nations globally—and fourth among the 34 African nations. Zimbabwe, on the other hand, ranked 123rd globally and 26th among the African nations. The correlation between long-term growth and rule of law suggests economic develop depends less on the volume of aid and more on the strength of national institutions and global trade.

Source: World of Justice Project Rule of Law Index

Source: World Justice Project Rule of Law Index.

Jeffrey Sachs vs. William Easterly

Dr. Jeffrey Sachs, an economist and professor at Columbia University, has been a leading voice in support of development aid. While noting that abuses and failures are regular features of the foreign aid system, Sachs argues that foreign aid remains an indispensable tool for freeing developing nations from what he calls the “poverty trap.” Without aid, he argues, the poorest nations are unlikely to establish the infrastructure and institutions necessary to reach the first rung of the economic ladder and begin their climb to prosperity. Sachs has written frequently on this topic, including his 2005 book The End of Poverty: Economic Possibilities for Our Time.

Dr. William Easterly, on the other hand, has been a prominent critic of foreign aid. Easterly, a development economist and professor at New York University, argues that foreign aid is another chapter of Western imperialism: the citizens of rich nations naively believe that they can, by their superior wealth and know-how, lift poor nations out of poverty. Self-assured in their good intentions, donor nations overlook the ways aid regularly stunts economic growth and perpetuates corruption and bad policy in recipient nations. Too often, in this view, aid becomes a tool to manipulate developing countries for the benefit of developed countries and their favored industries. Books by Easterly include The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good and The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor.

Easterly has identified what he calls the paradox of foreign aid. Where aid works, it is not needed. Where it is needed, it doesn’t work. He explained this paradox—and much more—in the keynote address of the 2024 PovertyCure Summit, “Beyond Material Progress: Markets and Dignity in the Fight Against Global Poverty”—which you can listen to here.

Although Sachs and Easterly disagree on many points, their work exhibits areas of consensus. For example, Sachs views private sector development—not government spending—as the ultimate path to economic progress. Easterly, meanwhile, understands that development foreign aid will continue and proposes ways to improve it.

Peter Bauer

Development economist Dr. Peter Bauer (1915-2002) was one of the earliest and most vocal critics of foreign aid. He warned that pouring development assistance into poorer countries would result in a variety of negative outcomes. Bauer argued, for instance, that aid would prop up dictatorships that might otherwise have collapsed or been overthrown without outside support. He also observed that aid aggravated the conflict between developed and developing countries. As developing countries became more dependent, the sense of division between “haves” in developed countries and “have-nots” among recipient nations became greater. He further cautioned against the threat of cultural imperialism, in which donor nations would impose certain values on developing countries by attaching conditions to aid. One manifestation of Bauer’s warning is, for instance, the widespread imposition of artificial brith control in Africa.

If assistance is to be both effective and ethical, Bauer argued, it must encourage self-determination in recipient countries—and not inhibit it. Too often, foreign aid is imposed in a top-down fashion, however, and removes or diminishes local agency. Instead of encouraging the rule of law and a culture of entrepreneurship, aid often has fostered corruption, disorder, and dependency.

Corruption

The way donor countries distribute foreign can cause enormous—even horrific—problems. Regular civil unrest and war are major obstacles for developing countries; yet foreign aid has been a major underwriter of the violence. Dr. Paul Collier, a development economist at Oxford University, reports that 40 percent of African military spending is financed by aid from developed nations.

A particularly notorious example of Western-financed corruption is the case of Mobutu Sese Seko, who ruled as president of Zaire (now the Democratic Republic of the Congo) from 1971 to 1997. During that time, Zaire received billions in foreign aid—while Mobutu stole billions for his personal fortune, according to Transparency International. Another example—one that is particularly disturbing from the American point of view—is the distribution of foreign aid in Afghanistan during the United State’s long occupation of that country. A majority of foreign aid assistance ended up in the hands of the Taliban.

Donor nations have attempted to address problems like these with various checks and controls. They have not found much success. The problem is that foreign aid is fungible. Aid money, even when used well, might free a dictator to use government money for less noble ends. Paul Rosenstein-Rodin, a former deputy director of the World Bank Economics Department, expressed the essence of the fungibility problem like this: “When the World Bank thinks it is financing an electric power station, it is really financing a brothel.”

Trade vs. Aid

An increasing consensus holds that developing nations can thrive long term only by participating more fully in the global marketplace. Even economists like Sachs, who view foreign aid as a necessary spur to economic development, recognize that sustainable development is best achieved through global markets. This suggests free trade with developing countries is the better development strategy.

Developed countries, unfortunately, impose any number of measures that exclude developing countries from the global market—including foreign aid itself. In a paper for the National Bureau of Economic Research, economists Raghuram Rajan and Arvind Subramanian observed that foreign aid inflows raise exchange rates within recipient nations, making exports less competitive and thereby inhibit the benefits of globalization for developing nations. Other policy measures, including agricultural subsidies and import tariffs, discriminate against goods produced in the developing world by inflating prices or otherwise shielding domestic industries.

The View from Africa

A growing chorus of voices from the developing world have spoken out against aid, arguing in some cases that it has delayed rather than promoted development. Senegalese entrepreneur Magatte Wade is one such voice, strongly advocating for entrepreneurship and free markets over foreign aid. “I wanted to do my part to raise the poor of Africa out of poverty,” Wade writes in her recent memoir, The Heart of a Cheetah, “and that meant jobs, not gifts.”

Another example of such a voice is Kenyan communications executive Michael Joseph, who argues that aid has failed because it is not targeted to building private enterprise. “If you look in Kenya—and we’ve had 40 or 50 years of aid, mostly from the European governments and NGOs—it has made very little long-term impact,” he told PovertyCure. “If we had put that into investing in factories, building infrastructure, creating jobs, I think we would have a much better impact than what we have today.”

Conclusion

Temporary disaster relief, rebuilding war-torn cities, and medical missions represent worthy, effective, and moral interventions by developed countries. The goals and results of the West’s decades-long experiment in economy building are much more mixed, however. In many cases, development aid has propped up corrupt regimes, distorted local economies, and created long-term dependency. Real “sustainable development” depends on entrepreneurship, innovation, and access to global markets. If wealthy nations truly want to support development, their policies should focus less on top-down transfers and more on encouraging rule of law. Ultimately, they should seek to empower countries and communities to shape their own economic futures.