An experiment on foreign aid and public spending changed our thinking on aid effectiveness

Foreign aid is often accused of promoting corruption and hurting development by encouraging recipient governments to reallocate budgets away from needed areas. A recent experiment in Malawi to test whether aid crowds out public spending found each project crowds out about 22%. Contrary to the claims of aid critics, this research finds no evidence that foreign aid undermines spending on the neediest or contributes to political patronage. Instead, politicians often claim to be motivated by fairness and equity.