(How) does aid work? A literature review of aid effectiveness & welfare studies

For many years, there has been a tendency to measure aid effectiveness primarily in terms of economic growth. Recently, though, there is also a growing awareness of the fact that measuring development and the quality of life solely from a growth perspective is inadequate. The most significant criticism of the growth-model is targeted at its limited ability to measure actual quality of life: while GDP indexes may offer a partial measure of collective production, they do not necessarily provide adequate measures of welfare. In general, there appears to be a very clear connection between income and quality of life indicators. The correlation between income and welfare is, however, most significant when economic growth is accompanied by a general improvement of incomes, a narrowing of the national gap between rich and poor rather than the opposite. For a number of reasons, some researchers have questioned the direct causal relationship between growth and quality of life. Studies dealing with welfare indicators as a measure of development generally find a significantly growing convergence between rich and poor countries in contrast to the income divergence taking place at the same time.