1. Foreign Aid
Jun Lin and Jiwon Lee

2. What is Foreign Aid?
Foreign aid is money that one country voluntarily transfers to another, which can take the form of a gift, a grant or a loan. Grant is money that one country gives to money directly, without expecting returns. Loan is money that one country gives in exchange for future repayment of the principal along with interest. Poverty Trap is a mechanism which makes it very difficult for people to escape poverty.

3. How is Foreign Aid Beneficial?
Without foreign aid, countries might not be able to escape the poverty cycle – people repeat the process of falling into the spiral of borrowing and spending only on immediate problems which will cause further problems in the future. With foreign aid, if countries escape the poverty cycle, they can increase their productivities in agricultural and industrial sectors, thus contributing more to society.
Money is directly sent to the country, and that money can mean more to the people. It is not only that these poor countries have currencies which have lower values than the dollar so the countries can buy more rice and water with the same price, it is also that because they have so little, many more people can spend the money on the most basic necessities and cherish the value of money.
An extra dollar does not do much to an average citizen in Canada, whereas it can do much more to an average citizen in Somalia.

4. Some Problems of Foreign aid?
Corruption – foreign aid, especially monetary ones, is susceptible to corruption; government officials often embezzle money, exploiting the weak governance and system of the government. The biggest problem of corruption is that donor countries believe that the problem is solve merely by providing money, but the beneficiaries are not the ones that are really in need. Inequality continues to exacerbate in the poor country.
Debt – although foreign aid made through loans can give the receiving country responsibility and stimulate them to boost economy, sometimes the interest is simply too high that countries have to borrow from other countries to pay for the loans. The cycle can repeat and debt will accumulate.
Foreign Dependency – If a country starts to borrow or receive from a country, they may not make long term plans in order to boost economy; if the country cannot escape the poverty cycle, then the country will keep depending on other countries’ aids.

5. Video

6. Successes Japan > Korea (1965)
“Treaty on Basic Relations Between Japan and Korea”
In order to reach “normalisation” of relationship from previous hostility
Indemnity for Colonisation(?)
Domestic view and general worldwide view differ on whether it was successful
President Park Chung Hee used the grants to improve infrastructure (e.g. construction of Soyanggang Dam, highways across the country) and subsidised some large companies which later become conglomerates called “Jaebols”
GDP in comparison: 3.02 billion to 1377 billion
President Park Chung Hee: Father of the ex-President Park Geun Hye who was impeached four days ago

7. Failures (1) Liberia In 2011, Received $765 million (USD) = 73% of GNI
Larger sums in previous years
2013, no single student out of the 25,000 students who took the exam to enter the Univeristy of Liberia passed the exam to enter the university
Such situation prevalent in Sub-Saharan Africa
Improvement on development, and thus the factors of production is important to provide more opportunities to the general public, in order to not aid just the highest bracket.

8. Failures (2) Lesotho Highlands water project
Supported by the World Bank, European Investment Bank, and African Development Bank
Objective: divert fresh water from the mountains for sale and for production of electricity
Why it failed: (1) electricity produced was too expensive for the average citizen, and (2) diversion of too much water caused environmental issues which also impacted the economy (3) people who lived close or were involved with the construction business lost either their home or jobs

9. Overall Evaluation
Foreign aid is almost inevitable in order to reach the macroeconomic goal of equality on a worldwide scale
It can help pull out countries from the poverty cycle, and there are examples that were successful
BUT
Planning is not necessarily effective, and corruption is prevalent
If the country cannot escape the poverty cycle, it suffers more from debt and depends more on foreign countries
AND CONSIDERING THE ISSUES WITH FOREIGN AID,
Fixes in systematic barriers to fix inequality problems and lower corruption is necessary (with assistance)
Using other strategies along (such as trade with other countries) will be most effective

10. Sources http://www.investopedia.com/terms/l/loan.asp
some-potential-solutions-part-2/
failed-aid-funded-projects-africa/#.WMiV25Oqqko

11. In Class Activity

12. 1.
Define Foreign Aid.

13. 2.
What are three issues with foreign aid?

14. 3.
Explain what it means by how a dollar in one country can be different from a dollar in another country.

15. 4.
What is one SPECIFIC LONG TERM EFFECT that is bad about foreign aid?

16. 5.
How can foreign aid be improved? (2 ways; hinted in role play)