A recent article in the Guardian states that foreign aid to developing countries reached a near-record high of $135 billion in 2014. Yet despite this level of donor contribution and the trillions of dollars that have come before it, billions of people still live on less than $2 a day, millions don’t have access to clean water, and millions of children still aren’t able to go to school.
So, what’s going on? Stimulating growth in developing countries often relies on throwing money at the problem, which doesn’t necessarily address the root cause of countries’ development concerns. Taking a more rigorous and strategic look at the source of countries’ underdevelopment could aid in the maturity of solutions that address the root causes and ultimately maximize the world’s overall prosperity.
One research team—Daron Acemoglu and James A. Robinson—have attempted this approach, spending years trying to identify the key factor that explains why some of today’s countries are wealthy while others are poor. In their book, Why Nations Fail: The Origins of Power, Prosperity and Poverty, they conclude that a country’s economic and political institutions are the strongest determinants of their development, even more than natural resource endowment, geography, disease burden, or access to foreign aid. Specifically, they believe that inclusive institutions—those shaped by widespread participation of a population whose economic freedoms are maintained by a strong, centralized state—allow greater long-term growth than extractive institutions, which restrict political and economic power to a small group of people and place little constraint on their use of this power.
Applied to real-world development, this research shows us that we might be better off promoting inclusive institutions in countries, rather than feeding more money into extractive regimes. While this doesn’t offer clear actions that development practitioners can take today, it does open a promising new line of research into further defining and leveraging the incentives that countries face when adopting inclusive vs. extractive institutions.
Research into the root causes of countries’ underdevelopment is just one potential way to change the way we approach international development. In the next part of this post, we’ll look at a “bottom-up” view of development, working at the community level and then slowly scaling up.