Unit 4 Macro: Overseas Aid and Economic Development - Smart Aid

There is increasing interest in the use of "smart aid" - aid programmes that use experimentation and focus on bottom-up projects in order to increase the effectiveness of each £ or $ given in aid

The work of Esther DuFlo, the author of the award-winning "Poor Economics" and professor of development economics at the Massachusetts Institute of Technology, has been influential in shaping ideas about smart aid and the importance of randomized trials to improve the effectiveness of aid.

Oral rehydration therapy, vaccines and the spread of bed nets to reduce malaria in Africa are examples of where randomised testing has had an effect to give aid projects more impact

Perspectives on aid from the authors of Poor Economics

Poor Economics maps out a third way between experts who believe aid does more harm than good, such as William Easterly and Dambisa Moyo, and those who believe the reverse, like Jeffrey Sachs and his Millennium Villages Project.

Banerjee and Duflo say the three main reasons aid is ineffective are “ideology, ignorance and inertia”. “Precisely because [the poor] have so little,” they write, “we often find them putting much careful thought into their choices: They have to be sophisticated economists just to survive.”

The two authors have used randomized control trials across five continents to test the impact of policies aimed at beating poverty, from the provision of free anti-malaria bed-nets to education subsidies