The idea that global poverty could be eliminated if only rich people or rich countries were to give more money to poor people or to poor countries, however appealing, is wrong. Its undying popular appeal seems to be based on the commonsense notion that, if I am poor, and you give me money, I am less poor.
But foreign aid doesn’t work that way; the belief that it does is what I call the “aid illusion,” itself a barrier to better policies. A closely related illusion is that fixing global poverty, or meeting development goals, is a technical or engineering problem, best handled by development “experts” one road, one school, one clinic, or one dam at a time; all that is lacking is money.
These simplistic beliefs are based on a misdiagnosis of what it is that is keeping people poor. As the economist Peter Bauer noted many years ago, if the conditions for development are present except for money, money will soon be available but if the conditions for development are not present, aid will be unproductive and ineffective.
In fact, foreign aid is one of the least important of the ways in which rich countries affect poor countries. Rich countries provide capital in the form of private investment, often more readily and with less bureaucratic fuss than do aid agencies.
Angus Deaton writing at ForeignPolicy.com, Sept. 16, 2013