William Easterly and Laura Freschi of AidWatch fame have a thought provoking blog post at the New York Review of Books that asks, "Why Are We Supporting Repression in Ethiopia?" It should be required reading for anyone interested in the consequences of foreign aid.
Their post does not pretend to be an exhaustive treatment of the consequences of aid. However, it does explain one of the likely negative consequences: propping up corrupt tyrants. Easterly and Freschi draw upon a new study published by Human Rights Watch which uses many interviews with Ethiopians, documenting that foreign aid to Ethiopia has been used by the Prime Minister of Ethiopia to "discriminate against non-party members and punish dissenters."
Such negative political consequences of foreign aid were also recognized many years ago by P. T. Bauer in his chapter on foreign aid in his excellent book, Reality and Rhetoric: Studies in the Economics of Development.
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