Arnold Kling

A Natural Experiment in Foreign Aid

Arnold Kling, Great Questions of Economics
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"Natural experiment" is a vogue term among academic economists. It means a phenomenon that occurred accidentally but which has the effect of creating something like a controlled scientific experiment. John Weidner does not use the term, but in a very insightful post he describes the abundance of oil wealth in Arab countries as a natural experiment in foreign aid.

A select group of undeveloped countries has been showered with so much of our wealth that they have often been at a loss what to do with it. The money was given in exchange for petroleum, but since that was a commodity they were not using themselves, these countries were essentially just given trillions of dollars. Money enough to provide them with a standard of living comparable to the West.

...The truth is, though they have lots of money, they are as poor as ever. If the petro-dollars vanished, they would revert instantly to pauperhood.

Discussion Question. Weidner goes on to say that "Real wealth is in people and character, and no one can give to you." Is the natural experiment sufficient evidence to justify such a strong conclusion?

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