More aid, better institutions, or both?

Abstract

It has been nearly 20 years since a working definition for “sustainable development” was put forward by the World Commission on Environment and Development. The concept endures in the mission statements and frameworks of action of various societal actors, including those of neighborhood associations, metropolitan development authorities, environmental ministries, and United Nations (UN) specialized organizations, to name a few. Yet many observers doubt that sustainable development is occurring in poor countries. This failure, the critics contend, stems from miserly transfers of foreign aid. The extent to which inadequate aid is to blame for poor environmental/developmental outcomes is an open question. But vocal demands for increasing aid to meet sustainable development goals come from many parts of society and are persistent. Exhortations for more aid to help poor countries are noble, perhaps even justifiable, but there are understandable doubts about the wisdom of transferring large capital and technical resources to countries that are slow to adopt needed institutional reforms. Aid without institutional reform is a recipe for wasted resources and donor fatigue. Worse, it may enhance inequities of wealth and power in recipient countries. There are few illustrations to draw on demonstrating how institutionally impoverished societies are affected when they are compelled to absorb massive aid inputs over a short period––a remedy suggested by some prominent aid experts. As a proxy, it is valuable to examine instances where swift macroeconomic changes, spurred by external investment and export-led growth, has occurred without significant institutional development. The case of Equatorial Guinea and its sudden oil riches is examined to discern whether, in the absence of meaningful institutional reform, rapid and profound increases in foreign direct investment and export income enable poverty alleviation and sustainable development.