Jeffrey Miron and Jacob Winter
The Trump administration’s efforts to close the US Agency for International Development have stimulated discussion of why rich nations distribute aid. Recent research (Cato Research Brief no. 425) finds that one reason is an attempt to improve access to natural resources:
Our findings show that recipient countries that make major resource discoveries receive more aid at a faster rate compared with similar countries without such discoveries. That is a paradox, considering that major discoveries are associated with an effective relaxation of international borrowing constraints. If anything, countries that made a discovery should receive less aid.
The authors speculate that this self-interest motive will perpetuate foreign aid:
Although several traditional donors in advanced economies have announced they will limit their expenditure on aid, it is likely that aid will continue to play a key role in helping to secure access to critical minerals.… For major powers to dominate the new industries that will arise from [decarbonization and digitalization], they must secure access to critical minerals, such as lithium, cobalt, and rare-earth elements.
The United States should rely on the private sector, not foreign aid, to secure access to natural resources. The administration can facilitate this by minimizing trade barriers such as tariffs.
This article appeared on Substack on March 19, 2025.