The Why and How of Foreign Aid

Dean Karlan

No 35926, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F35 O1 Q0 (search for similar items in EconPapers)
Date: 2026-10
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