One side believes in the “poverty-trap” hypothesis, which says that the world’s poorest societies are incapable of providing themselves with even the most fundamental preconditions of economic growth. Their only hope is to receive a massive jolt of foreign aid that will break the cycle of poverty, plant the seeds of economic growth, and begin the process of development.
The other side argues that this theory neglects the baleful impact of bad governance. All too often, foreign assistance winds up lining the pockets of embezzlers, warlords, and thieves. Even if it does reach people in need, it provides a short-term fix that does not translate into long-term prosperity and material independence. So before we send money to the poorest corners of the globe, we need to make sure that the recipient countries have effective legal, political, and social institutions.
Read more of The American article about the new book by Edward Miquel and Raymond Fisman .