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Microfinance, foreign aid, Commitment to Development Index, debt and debt relief
David Roodman, a former CGD senior fellow, worked at the Center from March 2002 to July 2013. His work at the Center focused on microfinance, debt relief, and aid effectiveness. His widely praised book Due Diligence confronts questions about the impacts of microfinance and how it should be supported. He wrote the book through a pathbreaking Microfinance Open Book Blog, where he shared questions, discoveries, and draft chapters.
Roodman was an architect and manager of the Commitment to Development Index since the project's inception in 2002. The Index ranks the world's richest countries based on their dedication to policies that benefit the 5 billion people living in poorer nations; it is widely recognized as the most comprehensive measure of rich-country policies towards the developing world.
Roodman wrote several papers questioning the capacity of common cross-country statistical techniques to shed light on what causes economic development. He co-authored a 2004 American Economic Review paper that challenged findings of World Bank research that aid works in a good policy environment. His non-technical Guide for the Perplexed builds on analysis of methodological problems and fragility in other studies. Among econometricians Roodman is best known for his computer programs that run in the statistical software package Stata; articles about them won him the inaugural Stata Journal editors' prize in 2012. Also in 2012, Roodman aged off the RePEc list of top young economists in the world, at number 6.
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Washington, D. C. (October 15, 2012) - The United States has a long way to go in improving policies that support shared global prosperity, according to a Center for Global Development (CGD) index released a week before the US presidential debate on foreign policy.
Still the world’s largest economy, with GDP more than twice that of number two China, the United States nonetheless falls in the bottom half of the Center’s 2012 Commitment to Development Index (CDI), ranking 19th out of 27 high-income countries, with especially low marks for aid, environment, and security policies.
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The United States scores above average on only two of the seven index components – trade and migration – and is outperformed by all the major industrialized countries except Italy and Japan.
“We Americans like to think of ourselves as generous and willing to help poor people in developing countries. The numbers show we often fall short of this image of ourselves,” says David Roodman, CGD senior fellow and chief architect of the Index.
“When it comes to development, the United States has clear room for policy improvements across the board,” he added.
This year’s CDI, the tenth annual edition, shows that most wealthy nations, including the United States, have improved only slightly over the past decade and could do far better.
In this year’s Index, the top five are Denmark, Norway, Sweden, Luxembourg, and Austria.
The CDI scores wealthy governments on helping poor countries via seven linkages: aid, trade, investment, migration, environment, security, and technology. It averages the seven components for an overall score.
The US role in global poverty reduction was part of the national conversation during the 2008 presidential elections, when both then-Senator Barack Obama and Senator John McCain pledged to improve US foreign assistance and other policies that support development.
In contrast, during this election there has been almost no discussion of the US role in making the world a fairer, safer place, as the national debate has focused mostly on domestic issues, especially the state of the American economy.
Development has been raised during the campaign just once, late last month, when Republican candidate Mitt Romney told an audience at the Clinton Global Initiative in New York City that he favored a new approach to foreign assistance that would be a “bold break from the past.”
Sarah Jane Staats, director of CGD’s Rethinking US Foreign Assistance Program, said that the approach Romney outlined in his talk was similar to the efforts of President Obama and his predecessor George W. Bush. President Obama did not address the US role in tackling global poverty at the New York event, focusing instead on the fight against human trafficking and “modern slavery.”
This year, of the seven large high-income countries that comprise the G-7, only the UK ranks among the Index’s top 10 countries, with an overall score of 5.7. Canada ranks 11th, with an overall score of 5.4, and would have fared better except that it received poor marks on the environment component for low gas taxes, high per capita greenhouse gas emissions, and the recent decision to withdraw from the Kyoto Protocol, the only international agreement on climate.
The United States, with an overall score of 4.8, is also pulled down on the environment component and thus its overall score by low gas prices, high greenhouse gas emissions, and failure to sign the climate treaty.
The 2012 edition of the CDI includes changes in methodology, including new indicators for the security component and the addition of five countries: Luxembourg, Poland, Slovakia, the Czech Republic, and Hungary.
Luxembourg performed well with high marks in aid and migration; the Visegrad countries (Czech Republic, Hungary, Poland, and Slovakia) joined the perpetually-low ranking South Korea and Japan at the bottom of the Index. Despite their low status on the Index, all four Visegrad countries earned top marks in the environment component due to high gas taxes and low per capita greenhouse gas emissions.
Scandinavian countries continued to do well on the CDI. Denmark, with an overall score of 7.0, took Sweden’s top spot, breaking the country’s two-year streak at the top of the Index. Norway came in second with a score of 6.6 and Sweden came in third at 6.4. However, this year marked a decline in overall score since 2003 for both Denmark and Sweden – by 0.2 and 0.3 points respectively.
“What we see are slight improvements, but overall industrialized countries, and the largest, richest nations in particular, fall well short of their potential,” says Roodman.
The Center for Global Development: CGD works to reduce global poverty and inequality through rigorous research and active engagement with the policy community to make the world a more prosperous, just, and safe place for all people. As a nimble, independent, nonpartisan, and nonprofit think tank, focused on improving the policies and practices of the rich and powerful, the Center combines world-class scholarly research with policy analysis and innovative outreach and communications to turn ideas into action.
This post is coauthored with Julia Clark. You can listen to the pre-release podcast with David Roodman and Owen Barder.
We're proud to announce the release of the tenth edition of the Commitment to Development Index. Each year since 2003, the CDI has ranked wealthy nations on how much their governments' policies and actions support global prosperity. Nations are linked in many ways: through trade, aid, climate, technology, and more. The CDI assesses policies in all these areas in order to communicate that helping takes more than aid, and to organize a comprehensive agenda for development policy.
In this working paper, CGD research fellow David Roodman describes the methodology of the foreign aid component of the 2012 edition of the Commitment to Development Index. The CDI ranks 22 of the world’s richest countries on their dedication to policies that benefit the 5.5 billion people living in poorer nations. Moving beyond standard comparisons of foreign aid volumes, the CDI quantifies a range of rich-country policies that affect poor people in developing countries
Recent literature contains many stories of how foreign aid affects economic growth: aid raises growth in countries with good policies, or in countries with difficult economic environments, or mainly outside the tropics, or on average with diminishing returns. The diversity of these results suggests that many are fragile. I test 7 important aid-growth papers for robustness. The 14 tests are minimally arbi-trary, deriving mainly from differences among the studies themselves. This approach investigates the importance of potentially arbitrary specification choices while minimizing arbitrariness in testing choices. All of the results appear fragile, especially to sample expansion.
This course explores the role of microfinance in economic development. It will discuss how poor people in poor countries use financial services such as credit and savings; the history and practice of delivering such services; what is known about their contribution to development; and how stories and statistical studies shape public perceptions of microfinance.