Aid targeted to such low-income reformers can have a big effect on growth and poverty reduction. By the same token, large amounts of finance cannot be put to productive use before countries reform. In the highly distorted environments, donors need to find other instruments to support development. Can Be the Midwife of Good Policies More than just providing money, foreign aid must promote sound policies and help develop institutions. Since average developing country growth has been only 1 percent per capita, that would be a huge improvement.
Much development assistance is aimed at promoting policy reform, and the record is mixed.
Such reforms depend mainly on domestic political and social factors, which are not easy for outsiders to influence. But where development assistance to highly distorted regimes has stimulated policy reform, the nonfinancial aspect of aid has often been the important factor. In poor policy environments, ideas are more important than money. Some of the most important ways in which foreign assistance promotes policy reform are hard to measure. There has been a worldwide trend toward economic liberalization in the 1990s, and dissemination by development agencies of ideas about good policy has surely had an influence.