Growth and Development Foreign Aid Growth and Development

What is aid? FOREIGN AID is used to transfer the voluntary transfer of resources of resources from one country to another or to loans given on concessionary terms (at less than the market rate)

The two types of aid Humanitarian aid-refers to aid that is given in times of desperate need, for example in the case of natural disasters for the support of refugees. This can be seen with the recent Haitian earthquake (12 January) Development aid-refers to aid that is given to alleviate poverty in the long term, and aims to improve things such as infrastructure and health and education services.

What is the target assistance for developing countries? In 1970, the countries of the UN agreed that the amount of aid given to developing countries by one countries will be 0.7% of it’s respective GDP. However, few consistently meet this target

Surely there has to be a catch… Development aid is more likely than humanitarian aid to carry direct or indirect economics or political burdens

Sorts of Aid Multilateral aid Bilateral aid Tied Aid When countries pay money to an international agency which then distributes to countries on the basis of certain criteria Aid given directly to one country by another Multilateral aid Bilateral aid Sorts of Aid Tied Aid Aid with conditions attached Political reforms Buying goods from donor country Economic reforms

What are the arguments for aid? Improves human capital Provides funds for infrastructure Reduces global absolute poverty Can increase AD through the multiplier Can promote sectoral development Reduces HIV prevalence Promotion of healthcare, education and training What are the arguments for aid? Fills the savings gap Can contribute to increased globalisation Reduction in world inequality This is frequently associated with growth and development

Who agrees? Celebrities Governments Bono often stops his concerts in order to raise awareness of world poverty and asks people to give aid These are the guys who donate so much of the GDP to development, along with others Angelina Jolie often visits poor African countries and has already adopted three children herself

Arguments against Aid

1-Does it work? There is no clear evidence that aid helps to reduce absolute poverty or growth and development In the last 60 years, $60 trillion of aid has been given to Africa, with no obvious signs of improvement

2-It may result in a dependency culture The recipients of aid become dependent on the aid They do not pursue sound macroeconomic policies No economic growth or development

3-It may not benefit those who it was intended to It could be diverted into military or nuclear expenditure It could be ‘lost’ as a result of corruption SOUTH KOREA Poor African politician Luxury cars and mansions

4-Interest on concessionary loans has to be paid back This involves an opportunity cost for the developing countries such as… Developing infrastructure Building hospitals Improving education and training

5-It can distort market forces Which leads to an inefficient allocation of resources 6-It gives rise to economic imperialism As donor countries try to secure political influence on the countries to which they give aid

Important things to note Humanitarian aid is not usually contentious so the focus here is on aid given for development purposes Official development assistance refers to aid specifically given by governments, and not that of voluntary agencies

Are you for or against?