How does foreign aid impact development economics?

Answer 1

Foreign aid is a double edged sword. It can do a great deal of good, but it can also cause a lot of problems. First, lets look at some of the good things that it can do.

Foreign aid is meant to be used to improve the economy of the recipient country. If used properly, foreign aid can improve infrastructure and industries. Infrastructure is vitally important, because the better the infrastructure, the easier it is to move resources around the country and the more developed areas can become. Generally, the portions of the country most devastated by poverty are those that have the worst infrastructure, and this isn't just a coincidence. Better roads and utilities make areas more attractive to industries, and when industries move into an area, they bring jobs along with them, boosting the local economy. Thus, using foreign aid to help establish new industries can also have a positive effect on the economy.

Now for the bad news. Unfortunately, most of the money from foreign aid does not find its way to these uses. Much of the money falls into the hands of corrupt government leaders or is squandered on pet projects that will not improve the life of the people. And why is this? The answer is very similar to a situation we see every day. In corporate America, if a division of a company completes all their projects on lower budgets, they will be expected to continue doing this in the future and their budget will be reduced. This is why lots of times money is squandered in order to keep from losing the budget. Likewise with foreign aid. Under the current foreign aid scheme, countries which use the foreign aid to improve the country and economy are "punished" for doing things right by having the amount of foreign aid reduced. Thus, it is to the benefit of the leaders of the country to keep it in an unimproved state, as they will receive more money to improve the economy as long as it continues to need improving. What we need to do is change the current system to reward those who are making the most of foreign aid dollars and reduce the amount given to those who do not use it well. By doing this, we would see alot more improvement, since it would be to the benefit of countries to improve the economy. This would also reduce corruption, since corrupt economies would not be improving as quickly and would thus be receiving less aid.

Answer 2

FOREIGN aid can work both ways. It can have strong positive effects with transfer of technology and product processes. it can finance the budgetary gaps in the financing of critical projects like infra-structure and other capital intensive programs. Government to government flows can be helpful in enhancing political goodwill also. private to private funds transfers are always a big trigger to growth and employment. Aid flows are now directed toward the goals of poverty eradication, aids and HIV awareness campaigns, woman empowerment, and many other socio-economic objectives.
While, take-off and maturation stages can be expedited with aid and technology flows, apprehensions are often expressed at the recipient end that such flows may bring with them some kind of domination and transfers can remain non-transparent. Aid-flows can perpetuate themselves and recipient economies can become permanently dependent on them.
Also, foreign aid in collaboration with MNCs and other big business at home could promote monopolies and oligopolistic conduct of business. If foreign aid enters with strings, it may be deleterious in many ways, snapping the freedom being at the top.But all said and done, if properly monitored, it can be a significant catalytic force for the domestic economy.

Answer 3

More details required

Answer 4

thankyou for the replies, very much appreciated!