CHAPTER 52: Relationship Between Countries
International aid
International aid is the giving of money and/or goods by one country to another or by an
organization to another country.
Forms of aid
Aid comes in a variety of forms and classifications. One way is shown in Table below:
Reasons for giving aid
Countries provide aid for a wide variety of reasons. Aid programs often serve several purposes
simultaneously. It is difficult, therefore, to state which might be the most important. The
reasons include:
1. To promote economic development, sometimes through international organizations
2. To help in the reduction of poverty
3. To promote a country’s exports by requiring the recipient country to use the aid to purchase
the donor country’s products
4. To relieve suffering caused by natural or man-made disasters such as earthquakes or diseases
5. To try to prevent the destruction of the environment
6. To help improve their own security by preventing friendly governments from falling under the
influence of unfriendly ones or as payment for the right to establish or use military bases in
the aid receiving country or to combat international terrorism, and other crimes
7. To achieve a country’s political goals including getting support for its positions in international
organizations, or to increase its diplomats’ access to foreign officials
8. To increase the influence of its language, culture or religion.
Effects of aid
There is no agreement on whether international aid is good, bad or somewhere between. This is
because the effect of aid often depends on the political situation in the country. Table below
sets out some of the positive and some of the negative effects.
Importance of aid
Importance of foreign aid clearly overlaps with many of the points given in the previous
sections. Table below list some of the areas of importance with a brief explanation .
, Trade and investment
Foreign direct investment (FDI) has become a key element of trade between different countries.
Traditionally a firm in one country would invest in either the natural resources of another
country by, for example, opening a mine or would set up a factory in another country, often to
get round trade barriers. Today, however, rather than businesses in one country simply trading
with international partners, more and more companies are buying controlling stakes in foreign
enterprises.
Global value chains (GVCs) have increased the interdependency between trade and FDI as
companies combine trade with investment to organize the supply of inputs, to expand in new
markets, to access knowledge, and to provide services to consumers.
In addition, whereas thirty years ago FDI was mainly from the developed countries to the
developing ones, nowadays many developing countries such as China, India and the UAE have
invested in other countries. This has created a more global world and a great expansion of
trade.
The World Bank has said that FDI is not only about capital, but increasingly about sharing
technology and intangible assets such as know-how or brands in conjunction with local capital
or tangible assets of domestic investors.
Role of multinational companies (MNCs)
Definition of MNC
Multinational corporations (MNCs) – sometimes called transnational corporations – are firms
that operate in a number of different countries. They have their head offices in one country, but
have operations in a number of other countries.
Activities of MNCs indulge in a range of activities including:
1. factories to manufacture the whole product
2. factories to manufacture parts which are then sent to factories in other countries
3. factories to assemble parts from other factories in different countries expanding their size
through mergers and takeovers
4. sponsoring relevant university courses and employing the best graduates
5. FDI
International aid
International aid is the giving of money and/or goods by one country to another or by an
organization to another country.
Forms of aid
Aid comes in a variety of forms and classifications. One way is shown in Table below:
Reasons for giving aid
Countries provide aid for a wide variety of reasons. Aid programs often serve several purposes
simultaneously. It is difficult, therefore, to state which might be the most important. The
reasons include:
1. To promote economic development, sometimes through international organizations
2. To help in the reduction of poverty
3. To promote a country’s exports by requiring the recipient country to use the aid to purchase
the donor country’s products
4. To relieve suffering caused by natural or man-made disasters such as earthquakes or diseases
5. To try to prevent the destruction of the environment
6. To help improve their own security by preventing friendly governments from falling under the
influence of unfriendly ones or as payment for the right to establish or use military bases in
the aid receiving country or to combat international terrorism, and other crimes
7. To achieve a country’s political goals including getting support for its positions in international
organizations, or to increase its diplomats’ access to foreign officials
8. To increase the influence of its language, culture or religion.
Effects of aid
There is no agreement on whether international aid is good, bad or somewhere between. This is
because the effect of aid often depends on the political situation in the country. Table below
sets out some of the positive and some of the negative effects.
Importance of aid
Importance of foreign aid clearly overlaps with many of the points given in the previous
sections. Table below list some of the areas of importance with a brief explanation .
, Trade and investment
Foreign direct investment (FDI) has become a key element of trade between different countries.
Traditionally a firm in one country would invest in either the natural resources of another
country by, for example, opening a mine or would set up a factory in another country, often to
get round trade barriers. Today, however, rather than businesses in one country simply trading
with international partners, more and more companies are buying controlling stakes in foreign
enterprises.
Global value chains (GVCs) have increased the interdependency between trade and FDI as
companies combine trade with investment to organize the supply of inputs, to expand in new
markets, to access knowledge, and to provide services to consumers.
In addition, whereas thirty years ago FDI was mainly from the developed countries to the
developing ones, nowadays many developing countries such as China, India and the UAE have
invested in other countries. This has created a more global world and a great expansion of
trade.
The World Bank has said that FDI is not only about capital, but increasingly about sharing
technology and intangible assets such as know-how or brands in conjunction with local capital
or tangible assets of domestic investors.
Role of multinational companies (MNCs)
Definition of MNC
Multinational corporations (MNCs) – sometimes called transnational corporations – are firms
that operate in a number of different countries. They have their head offices in one country, but
have operations in a number of other countries.
Activities of MNCs indulge in a range of activities including:
1. factories to manufacture the whole product
2. factories to manufacture parts which are then sent to factories in other countries
3. factories to assemble parts from other factories in different countries expanding their size
through mergers and takeovers
4. sponsoring relevant university courses and employing the best graduates
5. FDI
