What are the Opportunity Cost of 700 Billion Dollars? Aid to Developing Countries Instead of Wall Street.

I have not commented much on the bailout proposal, because I don’t completely understand what is going on (actually this sentiment is quite common among my colleagues). But a good question anytime someone spends money is what where the opportunity costs, or what could the money have been spent on instead?

Over at the Oxfam Blog, Duncan Green, suggests that the 700 billion dollars could be spent on developing countries. The 700 billion is about twice what the poorest 49 countries international debt is. He also suggests it is 5 times the cost of achieving the Millennium Development Goals, which include food, schooling, and basic health care for all.

This makes me think of my class yesterday, we were discussing Paul Collier’s book The Bottom Billion. In the book he discusses his previous research that shows that international aid experiences diminishing returns, that is the first bit of aid helps a lot but each additional bit of aid does not help as much. Collier research showed that once aid reached 16% of GDP additional aid had not impact on GDP growth.

I’m not sure if there is currently the capacity and infrastructure to distribute 700 billion dollars in foreign aid. But a comparison of the numbers is always worthwhile.


h/t to Chriss Blattman