One of the major models used in macroeconomics is the Solow-Swan growth model. Skipping a lot of mathematics, the model essentially tells us that economic growth is a function of capital (k), labor (l), and some mysterious A factor that sums up pretty much everything else (education, technological progress, institutions, etc).
When Solow first developed this model, he figured that he’d see economic growth was driven primarily by capital. However, in testing this model over the years, the conclusion is repeatedly that the A factor is the driving aspect of the model, not labor or capital.
To the extent this is true (the Solow Model has many limitations, even Robert Solow himself recognized this), it would have serious implications for foreign aid. Given the A factor accounts for everything not capital and labor, and that it appears this A factor is the main driver of economic growth, it would suggest that most foreign aid done by wealthy nations is wrong-headed. US (and other 1st World Nations) foreign development aid is very capital-focused: building factories, expanding ports, providing machines, that sort of thing. Given the findings of the Solow model, it would suggest this is the wrong way to handle foreign aid. In order to be more effective, foreign aid would need to focus on the A factor. Of course, the problem here is how broad A is. Other models have tried to break apart A into various components, such as human capital (education), but even those aspects appear to have limited effects. It’s an interesting question (as well as the question on, given this evidence, why foreign aid is still very capital-focused. I hope to address this in some hypothetical sense in a future post).
Of course, none of this is to say that there should be no foreign aid. Just because capital’s influence on the growth rate is limited doesn’t mean it shouldn’t be supplemented. But it does suggest that the current regime of foreign aid is inefficient.