 Thank you. Good afternoon everybody. Thank you for this opportunity to be here. I'm going to be speaking On the topic of a defectiveness. Have we learned anything and I want to caveat that To begin with by just saying that of course this is only I'm only going to speak about a relatively small part of what is an enormous literature about foreign aid and the economics of foreign aid I'm going to really speak about four four things I'm going to briefly provide a definition about what we mean by a defectiveness Those of you in the room who are familiar with the literature will not be surprised about what I'm going to say But it's just to kind of clarify what we mean by a defectiveness I'm then going to speak briefly about some of the Disagreements that have emerged in the literature over the many years that there's debates going on about a defectiveness Thirdly I will speak about five Lessons that I think can be taken from the more recent literature with which wider in particular has been involved and and also myself that has My thesis being that we have actually learned something new from this recent spate of literature and then finally I will conclude with some brief implications So with that with that introductory comment So aid effectiveness research essentially Asks the question has foreign aid been effective in raising the welfare of Households individuals in recipient countries. So for that Reason we we typically start from the point of departure as at least as economists that there is some reasonably consistent mapping between higher income and higher welfare and that's why a Lot of the literature has and continues to focus on economic growth as a not the a Fundamental final performance metric of foreign aid. Of course, that is, you know There is significant debate about only concentrating on economic growth as a metric of performance But it is one of the most important ones in principle So of course, there's been a lot of disagreements and to draw on The old adage of Winston Churchill if you put two economists in a room you get two opinions and Particularly with foreign aid. You might even get three opinions Which is probably true today. So we know that economists have been divided for for generations Regarding the effectiveness of foreign aid and just to give you some some quotes here to give you a sense of Of this Billy's to Lee in 2005 Complained that spending two point three trillion dollars in aid of the past five decades has left some of the most aid-intensive Regions like Africa wallowing in continued stagnation. It's fair to say this approach has not been very successful and famously on the other side of the debate has been Jeffrey Sachs who in various Interventions has identified foreign aid as an important factor in the growth of many developing countries an example being his comment in 2009 without foreign aid Rwanda's path breaking public health successes and strong current economic growth would collapse and I Think as a result of the disagreement in the literature Many probably would conclude we haven't really learned a great deal from this kind of research To more recent contributions again from distinguished economists Would point to that Conclusion at least being prevalent in some circles for example Sebastian Edwards in 2014 writes Overall the results from this large body of research have been fragile and inconclusive Nancy Kean in a an a review article published in last year Again says the empirical literature on the impact of foreign aid is perhaps one of the most controversial ones in development And growth economics, but a large number of studies have emerged to dispute the positive effects of foreign aid So again the conclusion being we really haven't learned much and perhaps the positive effects studies aren't being Maintained in the recent literature Okay Why so much disagreement well at least there's from my perspective there's at least four reasons we continue to find Disagreement in the literature. The first is the ideological one, which I think we can all understand exists But is is is going to be persistent Secondly as Patrick mentioned in the introduction. There's the concern of endogeneity Aid is mostly given to poor countries. So there is of course on the face of it a relationship between Bad economic performance and receiving more aid and it's difficult to address this Thirdly perhaps less appreciated is there a long Chains running from the receipt of foreign aid to aggregate outcomes such as growth They're long in two senses First of all, there's lots of intermediate and multiple causal pathways involved Imagine the case of providing aid for instance that goes to the education sector. Well, that will perhaps Ideally provide more education to Children these children must then enter the workforce In hopefully higher quality or more productive jobs, which would then provide more growth So that that chain is long because it has many causal steps But it's also long in terms of time. It takes time for these effects to come out in in terms of aggregate outcomes The fourth difficulty that the aggregate aid effectiveness literature has faced is of course again as Patrick mentioned Measurement aid is not a homogeneous good so that Makes it very difficult to make claims about aid because aid may go for different objectives Aid is given by different donors and the objectives of donors have changed over time as we know. So this in addition to the difficulty of actually establishing how much aid a given country has received at any given Period of time makes it very difficult to to come to sensible answers So it's difficult How has the economics profession responded to these difficulties Well, I think we should be honest and say yes, it is very difficult to come to clean Answers about the causal effect of aggregate aid effectiveness. I notice here a typo It's the aid effectiveness effectiveness, which perhaps is a another question itself What's the effectiveness of the aid effectiveness literature, but that is a is a is a beside the point But I think we should also note that the difficulty of establishing a strong causal relationships at let's say the macroeconomic level is not unique to aid We only need to think of the discussion around immigration and labor market reform as being similar in the amount of controversy we've seen in the literature So what should we do as researchers about this? Well one response, which is you know arguably pretty popular these days is let's change the question Let's focus down on those narrow parts or components of aid effectiveness Where we can actually obtain rigorous identification of causal effects and a good example of this kind of literature would be a paper published in the AER Last year which looks at the effect of US food aid on on conflicts There's no doubt that this kind of research is is important and it will continue, but should we stop here? And I don't think we should to again borrow from Another distinguished Individual an approximate answer to the right question is worth a great deal more than a precise answer to the wrong question not to say that Many of these studies are asking the wrong question But we also need to be aware and at least attempt to answer some of these bigger questions because one of the dangers I believe that if we don't we run the risk of being exposed to either anecdotal style evidence or weakly supported generalizations from individual studies and I think as Stefan Durkon mentioned yesterday It's very easy for us to pick individual pieces of evidence that are going to support a pick a particular point of view so I Believe it is and it remains important to to undertake rigorous research trying to tackle these difficult big questions and the thesis that I will now get on to is I believe that the recent research has provided new and Reasonably consistent insights about aggregate aid effectiveness, and I just want to take you through what I think are perhaps five Main lessons from some of this research So the first one which may or may not be a surprise is that there seems to be an emerging consensus that aid has Enhanced growth and here. I I've just summarized a number of the recently published studies since 2008 And it's just summarizes the essentially the main the main estimates of the relationship between aid and growth and the column beta here provides you with regression coefficient estimates But what's important is that while there is admittedly you know a substantial Distribution of effects as one would it was one would find or expect to find in using different methods different data and so on we do come out at an approximate average effect which says roughly if you were to give a country around 10% of its aid in GDP over a long period of time I'll come back to that You might expect a growth dividend of about an additional one percentage point in growth over that period of time roughly speaking So this is where a Lot of recent studies seem to be pointing towards positive effects of growth of This kind of order of magnitude and it's notably that they're also in the same reasonable or roughly the same order of magnitude Secondly There seems to be a positive effect on other outcomes as well, which is nice to hear It's not just economic growth that seems to have been improving other outcomes which are consistent with a Reasonably logical causal change seem to be there for instance we have evidence of some reductions in the poverty headcount improvements in investment and increases in human capital schooling and And health outcomes Thirdly And I think this is important to stress that the positive effects of aid appear or at least appear in the data over longer time frames we need to Be observing these countries and be open to the possibility that it takes a long time for aid to emerge To have positive macroeconomic effects Some simulation evidence that I've been involved in using a very kind of simplified generally equilibrium economy Leads to the same conclusions. So if we simulate a Basic economy with a reasonable set of parameters. We also find the same conclusions. So it's it's consistent with with what we would expect Fourthly the magnitudes of the macroeconomic effects of aid are Moderate what moderate isn't necessarily the right word, but it's moderate relative to the expectations That some people have spoken That aid should should provide the idea that aid is going to dramatically and fundamentally improve performance of economies is Re is well at least of the magnitudes of aid is misplaced and we need to have realistic expectations of what aid can do so again The the same kind of simulation evidence points to an internal rate of return of Roughly 10% on average So the implication of this is that concessional Funding is important Many developing countries cannot raise commercial debt at rates which are significantly Below say around 10% Ghana I believe is now going back to the Euro bond market to try and refinance refinance some of its debt and is facing Quotations in excess of 9 to 10 percent So if your rate of return on average is only around 10 percent There is an important role for concessional long-term funding We shouldn't forget that and fifth human capital upgrading appears to be a very important channel through which aid improves growth and macroeconomic outcomes and again that relates back to the fact that we should take a long-term view rather than a short-term view Further information. I'd be happy to share links to the research to which I'm referencing here So finally, what are the implications of this? both For research and more generally Well, as I've already said, there is an emerging view of a consistent and positive effect of Aggregate aid and of course this is on average over time and I think Why has this new why has this consensus been emerging? Well, I think it reflects better data Certainly, we now have a much longer span of data than many of the earlier studies in the literature We now have 30 to 40 years of aid data in many countries and can suddenly well Not we can start seeing these effects emerging over time and also also the attention to the endogeneity of aid Although imperfect, of course at the aggregate level has been better And as I said, we do recognize and we should recognize that individual studies are fragile It is not difficult and there's you know There's any number of papers have been have been written saying well if we change some assumptions or restrict the data in certain ways We get different results. That is correct That's natural, but once we look at the body of the literature We do also get a more consistent Set of results and that's important We should also recognize that the what we might call the clean, but narrow or clean and narrow studies Are highlighting more and more, you know the complex and heterogeneous Effects of aid and this deserves greater scrutiny and perhaps there are policy lessons that we can take out of this At least to avoid the damaging effects of aid in given circumstances One of the areas that remains less Explored and there remains perhaps more debate now is regarding the institutional effect of aid it is still plausible that aid may improve growth and Perhaps damage institutions. We're not a hundred percent sure of that as yet And there's no doubt that in terms of where the literature is going aid effectiveness Can be improved and this is particularly in the area of donor behavior And and in terms of the the kind of international agreements and international context under which aid operates So I think there is a you know a whole range of Additional research that is that is important to continue in this area and with that I will conclude. Thank you very much