Foreign Aid and Development
Aim of foreign aid is to fill the savings gap in developing countries and
promote economic development.
Aid ignores market forces and is a grant.
USED TO IMPROVE DEVELOPMENT (SSP)
Forms of Aid:
1) Official Development Assistance (ODA)
One donor government gives grant to developing country government
2) Unoffical Aid (NGO)
Via a NGO like oxfam - who spends money in dveelping country to improve
living conditions.
Types of Aid:
1) Humanitarian Aid - Short Term Suffering (WARS/ Natural
Disaster)
i) Food Aid - Provision fo Food
ii) Regional Aid - Provionoal of resouces/ money in certain regions
iii) Emergency Aid - Proiding emergency lighting/cooking facilities etc.
2) Development Aid
i) Long-Term loans - Donor government gives a loan to another country at
low interest rates tahn can be apid back over long period of time.
ii) Tied Aid - Money sent to developing country wiith caveat: Imports of
certain goods and services can be purchased from donor country.
iii) Project Aid - Money goven to developing countries for funsing of key
infrastructure projects
iii) Technical Assistance Aid - Money goven for advancement of technology
in developing country.
Money used to subsidie innovation in given firms/ research and
development.
, Organistaion/ Government sending technology experts to promote
etchnogical advancements
iv) Commodity Aid - Countries looking to increase competitiveness
Money used to buy commodities - lower costs of production - increasing
competitiveness - increasing development
Calssifying Aid:
Bilateral Aid
- Aid given from one government to another country government.
Multilateral Aid
- Aid is diverted through an organsition (worl;d bank) - who dices who
need aid teh most - aid distributed to countries that is needed the
most.
Problems/Limitaions of Aid in Promoting Development:
1) CORRUPTION* - government does not have teh welfare of teh
majority of the population at heart.
NOt all governments are altruistic
Soem politicians ruled by slef interest - keep aid money themselves instead
of redistributing aid.
2) Dependency - Little incentive to innovate - a welfare mentality can
devlop
Doemstic producer knows aid money is coming into economy - no incentive
to invest.
Domestic producer can used aid money for profit and to invest.
Developing countries give donors more thought - wnat to keep donors
happy - to keep on receiving aid.
Neglect their own economy
3) Aid ‘weariness’ in developed countries
Why should developed countries give aid if they need to use that money
themselves.
Developed countries hurt by rescsssion - 2008/9 crash.
4) Loan Repayments can lead to indebtedness problems
Add to developing countries debt - if loan cannot be repaid.
Aim of foreign aid is to fill the savings gap in developing countries and
promote economic development.
Aid ignores market forces and is a grant.
USED TO IMPROVE DEVELOPMENT (SSP)
Forms of Aid:
1) Official Development Assistance (ODA)
One donor government gives grant to developing country government
2) Unoffical Aid (NGO)
Via a NGO like oxfam - who spends money in dveelping country to improve
living conditions.
Types of Aid:
1) Humanitarian Aid - Short Term Suffering (WARS/ Natural
Disaster)
i) Food Aid - Provision fo Food
ii) Regional Aid - Provionoal of resouces/ money in certain regions
iii) Emergency Aid - Proiding emergency lighting/cooking facilities etc.
2) Development Aid
i) Long-Term loans - Donor government gives a loan to another country at
low interest rates tahn can be apid back over long period of time.
ii) Tied Aid - Money sent to developing country wiith caveat: Imports of
certain goods and services can be purchased from donor country.
iii) Project Aid - Money goven to developing countries for funsing of key
infrastructure projects
iii) Technical Assistance Aid - Money goven for advancement of technology
in developing country.
Money used to subsidie innovation in given firms/ research and
development.
, Organistaion/ Government sending technology experts to promote
etchnogical advancements
iv) Commodity Aid - Countries looking to increase competitiveness
Money used to buy commodities - lower costs of production - increasing
competitiveness - increasing development
Calssifying Aid:
Bilateral Aid
- Aid given from one government to another country government.
Multilateral Aid
- Aid is diverted through an organsition (worl;d bank) - who dices who
need aid teh most - aid distributed to countries that is needed the
most.
Problems/Limitaions of Aid in Promoting Development:
1) CORRUPTION* - government does not have teh welfare of teh
majority of the population at heart.
NOt all governments are altruistic
Soem politicians ruled by slef interest - keep aid money themselves instead
of redistributing aid.
2) Dependency - Little incentive to innovate - a welfare mentality can
devlop
Doemstic producer knows aid money is coming into economy - no incentive
to invest.
Domestic producer can used aid money for profit and to invest.
Developing countries give donors more thought - wnat to keep donors
happy - to keep on receiving aid.
Neglect their own economy
3) Aid ‘weariness’ in developed countries
Why should developed countries give aid if they need to use that money
themselves.
Developed countries hurt by rescsssion - 2008/9 crash.
4) Loan Repayments can lead to indebtedness problems
Add to developing countries debt - if loan cannot be repaid.
