SINGAPORE (Apr 3): We are still in the early stages of dealing with Covid-19. Yet, it is already clear that this new coronavirus will have long-lasting effects on the global economy, how we deal with pandemics, and perhaps even the architecture of international aid. This is because the Covid-19 pandemic is putting the spotlight on one of the less-noticed distortions of the international aid system: it does exactly the opposite of what the evidence requires.

To understand why, we need to distinguish between two kinds of aid. Traditional country lending seeks to improve outcomes in individual developing countries, while financing of global public goods (GPGs) aims to improve global welfare. The latter includes the development of technologies to promote agricultural productivity, actions to prevent climate change and mitigate its impact, knowledge creation, information provision, and, of course, preventing and dealing with pandemics.

Donors therefore need to decide how to allocate their funds between these two types of aid. Clearly, this decision should be informed by research regarding the relative effectiveness of country lending and financing of GPGs.

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