Terry College of Business - Fall 2009 - (Page 16)
Newsfeed Research and Innovation Advances from the Terry College of Business False promise of foreign aid By Matt Waldman (aB ’96) Santanu Chatterjee’s hometown of Calcutta is one of the last bastions of communism in India. Growing up in a city where buildings display graffiti eulogies to Marx, Lenin, Guevara, and Castro, Chatterjee was encouraged by his father, a tea exporter, to pursue a degree in engineering or the sciences. But it was Chatterjee’s father’s volunteer work with the United Nations that had the most powerful influence on the Terry economics professor, who is now a two-time recipient of the George P. Swift Award for Outstanding Teaching in Undergraduate Economics (2003, 2006). “We have photographs of my father shaking hands with Russian premier Leonid Brezhnev, U.N. Secretary General Javier Perez de Cuellar, and Mother Teresa,” says Chatterjee, whose father functioned as a liaison between government leaders, policymakers, and people at the ground level who were determining the best way to provide aid to disadvantaged regions of India. “Although I never intended to study economics, listening to his stories and seeing his work, I gained an interest in economic development.” Chatterjee’s 2009 Institute for the Study of Labor discussion paper “Where Has All the Money Gone? Foreign Aid and the Quest for Growth,” co-authored with UCLA professor Paola Giuliano and recent Terry Ph.D. graduate Ilker Kaya, grew out of work that Chatterjee did with Giuliano while he was a visiting scholar at the International Monetary Fund in Washington D.C. in 2005. It is also a reflection of his earlier work on foreign aid with Stephen Turnovsky at the University of Washington. “In theory, tying foreign aid to public investment is good because if the government does what it is supposed to with the aid it will promote economic growth . . . . but there is a consensus that foreign aid does not work,” explains Chatterjee, who is also a five-time Terry Sanford Award recipient (2004-2008) for research pertaining to macroeconomics, international economics, and economic development. Economists need to consider whether aid is actually spent as intended and why foreign aid has failed to alleviate poverty and economic deprivation in developing countries. These are issues the existing academic literature hasn’t addressed systematically, says Chatterjee. “What we find is that for every dollar of foreign aid, 70 percent is not spent how it is supposed to be,” says Chatterjee. “And for every dollar of investment aid that developed countries give to developing countries for public infrastructure projects, 90 percent gets diverted elsewhere. This gives us some perspective as to why foreign aid has failed to deliver.” Despite the inherent inefficiency and corruption in the way it is disseminated, foreign aid has undergone a seven-fold increase over the past 50-60 years. With world leaders calling for even more, Chatterjee believes the focus should be on improving the design of aid programs. “No one is talking about designing incentives to spend foreign aid as intended,” says Chatterjee. “So increasing foreign aid will not solve the problem.” Growing up in a developing country like India — whose colonial and socialist past often presented a “distorted view of the west” as Chatterjee was growing up — was an advantage to his research. “I consider myself privileged to see both worlds, and it gives me a more holistic view,” says Chatterjee. “It is interesting to study their differences.” special terry.uga.edu
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