The Aid Community should start asking the right questions

Updated: Jun 3, 2021

Frans Lammersen and Jorge Moreira da Silva(Director) OECD Development Co-operation Directorate – DCD-DAC

In The Wealth of Nations, Adam Smith wrote that: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by a natural course of things.” Others were less optimistic. They argued that nations are rich or poor because of differences in religion, culture, endowments, and/or geography.

Modern economic development theories originate from thinking about how to reconstruct Europe in the aftermath of World War II. The European Recovery Program – or the Marshall plan – was based on the notion that economic growth can be stifled by local institutions and social attitudes, especially if these influence the domestic savings and investments rate. According to this linear growth model, a correctly designed massive injection of capital coupled with public sector intervention to address market failures would ultimately lead to industrialisation and economic development. Many other economic development theories have since followed, but none have been able to explain convincingly why some countries experience rapid economic growth and others not.