5.5 Effectiveness of aid and the trade versus aid debate Economic Development

Tied Aid In pairs write down reasons why tied aid may not be effective.

Consequences of tied aid Higher costs – food up to 40% higher, other items up to 10% - 30%, technology may be inappropriate (capital intensive). Loss to LDCs up to $7billion per year.

Aid and Development Do governments focus upon increasing the tax base when they have access to aid? (Some aid is aimed at doing just that). Are all recipient governments developmental? Does aid increase corruption? Does aid reach those most in need? Aid as a political bargaining tool. Lack of co-ordination, monitoring and reviewing

Conditionality Often bilateral aid and multilateral aid comes with conditions. These have focused on supply-side policies. This raises questions relating to suitability and accountability.

Trade v Aid What are the benefits of free trade? What are the problems of adopting free trade policies? What are the benefits of aid? What are the problems associated with the effectiveness of aid? Does aid put a plaster over the problems of LDCs whilst at the same time perpetuating those very same problems? Aid for trade?

Related issues End subsidies and food prices rise – many LDCs have to import food. Higher prices more poverty. Nothing to export? Limited access to credit? Limited government tax revenues? How to break the poverty cycle without aid? Dependency culture? Debt repayment.

Answer these Test your understanding 18.1, page 483