The traditional formula for understanding the relationship between the developed and the developing world is the following: Aid = Economic Growth. That is, foreign aid spurs economic development in poorer nations.

A new study released by the National Bureau of Economic Research challenges this wisdom, however. “Aid and Growth: What Does the Cross-Country Evidence Really Show?” by Raghuram G. Rajan and Arvind Subramanian shows that “regardless of the situation — for example, in countries that have adopted sound economic policies or improved government institutions — or the type of assistance involved, aid does not appear to stimulate growth over the short or long term.”

Findings like this should cause advocates of aid-oriented programs like the ONE Campaign and the Micah Challenge to reassess their efforts. One way to change things would be to focus on actual es rather than simply looking at the inflow of aid. The ONE Campaign by definition is focused on the front side, the supply of aid, rather than any actual effects of the aid: “We believe that allocating an additional ONE percent of the U.S. budget toward providing basic needs like health, education, clean water and food, would transform the futures and hopes of an entire generation of the poorest countries.”

A summary of the NBER paper states, “Challenging the simplistic but seductive view that increased assistance from rich countries is likely to put many poor countries on the path to prosperity, a new study on the impact of foreign aid finds ‘little evidence’ that it ever has a positive effect on economic growth.” So the real-world formula looks something like this: Aid ≠ Economic Growth.

“Rajan and Subramanian observe that there is a tendency in analyzing the impact of aid for economists to take sides and conclude that it is good or bad for growth. But the authors argue that neither assertion is valid because the data supporting either argument is so ‘fragile’ that with only minor tweaks, it can yield the opposite result. For example, they take an analysis.”

The important thing to realize is that past aid programs have had no provable positive effect. The conclusion is not that aid has no part to play in future development, but simply that it cannot be the only answer, and as part of the solution, “the aid apparatus (in terms of how aid should be delivered, to whom, in what form, and under what conditions) will have to be rethought.”