Santanu Chatterjee's hometown of Calcutta is one of the last bastions of communism in India. Growing up in a city where prominent buildings display graffiti eulogies to Marx, Lenin, Guevara, and Castro, Chatterjee was encouraged by his father, an exporter of Indian teas, to pursue engineering or a degree in the sciences. But it was Chatterjee's father's volunteer work with the United Nations that had the most powerful influence on the eventual career of the Terry economics professor, who is now a two-time recipient of the George P. Swift Award for Outstanding Teaching in Undergraduate Economics (2003, 2006).
"My father would always be traveling to the U.S.S.R., Canada, and Europe for conferences. We have photographs of him shaking hands with the Russian Premier Leonid Brezhnev, U.N. Secretary General Javier Perez de Cuellar, and Mother Teresa," says Chatterjee, whose father functioned as a liaison between government leaders, policymakers, and people at the ground level who were determining the best way to provide aid to disadvantaged regions of India. "Although I never intended to study economics, listening to his stories and seeing his work, I gained an interest in economic development. I feel a connection between the work I do now, and what I saw growing up."
Chatterjee's 2009 Institute for the Study of Labor discussion paper "Where Has All the Money Gone? Foreign Aid and the Quest for Growth," co-authored with UCLA professor Paola Giulano and recent Terry Ph.D. graduate Ilker Kaya, exemplifies the powerful influence of his origins on his current research. The idea grew out of work that Chatterjee did with Giuliano while he was a visiting scholar at the International Monetary Fund in Washington D.C. in 2005 and some of his earlier work on foreign aid with Stephen Turnovsky at the University of Washington.
"Generally there is a consensus that foreign aid does not work. In theory, tying aid to public investment is good because if the government does what it is supposed to with the aid it will promote economic growth," explains Chatterjee, who is also a five-time Terry Sanford Award recipient (2004-2008) for research pertaining to macroeconomics, international economics, and economic development.
The important questions for economists are whether aid is spent as intended and why foreign aid has failed to alleviate poverty and economic deprivation in developing countries. These are issues the existing academic literature hasn't addressed systematically.
"What we find is that for every dollar of foreign aid, 70 percent is not spent how it is supposed to be," says Chatterjee. "And for every dollar of investment aid that developed countries give to developing countries for public infrastructure projects, 90 percent gets diverted elsewhere. This gives us some perspective into why foreign aid has failed to deliver."
He explains that despite the inherent inefficiency and corruption in the way it is disseminated, foreign aid flows from rich to poor countries has undergone a seven-fold increase over the past 50-60 years. With world leaders calling for even more, Chatterjee believes the focus should be on improving the design of aid programs. "However, no one is talking about designing incentives to spend foreign aid as intended," says Chatterjee. "So increasing foreign aid flows will not solve the problem."
Chatterjee considers growing up in a developing country like India — whose colonial and socialist past often presented a "distorted view of the west" as he was growing up — as an advantage to his research. "I consider myself privileged to see both worlds, and it gives me a more holistic view," says Chatterjee. "It is interesting to study their differences."