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The Why and How of Foreign Aid

Author

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  • Dean Karlan

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 which 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.

Suggested Citation

  • Dean Karlan, 2026. "The Why and How of Foreign Aid," NBER Working Papers 35926, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:35926
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    More about this item

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

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