Common sense principles in international trade are surprisingly useful for aid as well. Here’s a list of overall principles that help explain some of the most discussed aid dos and don’ts on this and other blogs.
1) Don’t trade low value items with huge transport costs. No exporter or importer in their right mind would ship bulky low-value items large distances, which is why things like construction materials are often locally-sourced. Aid examples: Nobody wants your old shoes, 1 million shirts.
2) Don’t send coals to Newcastle. Nobody exports food to a food-abundant region. Well nobody but US food aid, which ships food from Nebraska to the Horn of Africa, when there is plenty of food already in the region (it’s just badly distributed inside the region, which is what wise food aid could correct).
3) Don’t do dumping; it is illegal. Exporters are not supposed to charge a much lower price abroad than they do domestically, driving local producers out of business – that’s called dumping, and it’s illegal under WTO rules. Wait, unless the dumper is USAID and it’s called food aid. Actually, US food aid violates all of these first three principles.
4) Do export goods intensive in abundant resources; don’t export goods intensive in scarce resources. Many aid projects designed to promote poor country exports in a promising product violate this rule when they make the project dependent on the scarce and expensive resource called International Expertise. Small-scale handicraft projects heavily dependent on foreign experts are particularly gross violators.
Actually, ANY aid project should be designed to maximize use of abundant resources and minimize use of scarce resources. This is one of the defects of the Millennium Village approach – it’s intensive in the use of expensive foreign expertise, and so is not scalable.
5) The most gains from trade come when something is cheap in the exporting country and expensive in the importing country. Thank goodness the US does not try to grow its own bananas at some enormous expense, when they are cheaply bought from Central America and Colombia. Antibiotics can be cheaply made in rich countries but would be very expensive to produce in African countries, which is why aid projects that provide antibiotics cheaply make a lot of sense (actually private trade in antibiotics happens for the same reason, but doesn’t reach the poorest of the poor). Antiretroviral drugs, unfortunately, are expensive in the exporting country, so they are not as good an aid deal as antibiotics.