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The Hidden Samaritan Contest
Critics of foreign aid have argued that donors are driven by ulterior motives beyond their stated goal of reducing poverty in recipient countries. Peter Bauer, a Hungarian-born British economist, presented an early and prescient criticism of aid, arguing that aid is a transfer from taxpayers in rich countries to governments in poor countries. More recently, economists Angus Deaton and William Easterly have highlighted the so-called paradox of aid, with Easterly arguing that aid is ineffective where society wishes it worked. These criticisms are especially salient in the case of bilateral aid, as donors stand to benefit from a potential quid pro quo with recipients. These ulterior motives may center on access to markets and, perhaps more importantly, natural resources, especially in developing countries. Indeed, developing countries are less industrialized and tend to consume fewer natural resources than they produce. This creates an incentive for foreign economic powers to influence the use of these resources. Yet traditional donors deny such equivocation and assert their exclusive focus on reducing poverty. Our research studies major mineral discoveries and finds that foreign aid is indeed driven partly by a hidden contest among donors to access natural resources.
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