should provide large amounts of “developmental aid” in
order to solve the problem of poverty in sub-Saharan
Africa, the Caribbean, Central America, and South Asia is
based on an incorrect understanding of what causes
poverty. Countries such as Afghanistan are poor because
of their extractive institutions—which result in lack of
property rights, law and order, or well-functioning legal
systems and the stifling dominance of national and, more
often, local elites over political and economic life. The
same institutional problems mean that foreign aid will be
ineffective, as it will be plundered and is unlikely to be
delivered where it is supposed to go. In the worst-case
scenario, it will prop up the regimes that are at the very root
of the problems of these societies. If sustained economic
growth depends on inclusive institutions, giving aid to
regimes presiding over extracti