Amna kashif

Candidate no: 0314

To what extent does Foreign Aid benefit Developing Countries?

Foreign Aid has been important to economic growth throughout history, yet it affects more than
just the economy. Moreover, the term aid itself is at most times ambiguous. Foreign aid refers to
any type of support given by one country to another; it may be in terms of money, humanitarian
aid, commodities, or even military assistance (World Bank Report -Assessing Aid-). In my report
I will be researching the monetary aspect of foreign aid, which is not always given to countries in
terms of a grant: majorly foreign aid is given as a loan that is paid back by the receiver with little
or no interest rate. Through my research, I also aim to note the cases in which such aid is
justified.
Foreign aid has been distributed since the end of World War II, but over time multiple reports
show repetitive drawbacks of the aid that not only harms the economy of the developing
country, as they may become dependent on that aid, but loaners may also politically interfere in
those developing countries. Hence these concerns bring up the debate whether foreign aid truly
is beneficial to its recipient. By the end of my report, I hope to develop a better understanding of
the effects of Foreign Aid in developing countries by fully evaluating both sides of the debate.

I will begin my report by inspecting the different array of situations that lead a first-world country
to give aid to a third-world country. Then I will analyze the different perspectives of fields that
foreign aid usually affects; them being the economic perspective, the social perspective, and the
political perspective.

Initially, I will evaluate and analyze whether foreign aid benefits developing countries and in turn
leads to economic development. This aspect is very instrumental to the actual debate as it
brings the question of whether the aid given is fulfilling its purpose. Many economists argue that
the influx of foreign aid not only does not seem to produce economic growth in recipient
countries but also suggest that with the increase in citizen spending, inflation may rise due to
demand-pull factors and would increase dependency on the aid, as such was seen in the Sub-
Saharan African nations when aid led to an increase in the rate of unemployment and poverty
leading to increased risk of civil conflict and unrest. On the other hand, some researchers do
see a positive relationship between economic growth and foreign aid stating that a one percent
increase in the aid to gross net income (GNI) ratio increases annual real per capita GDP growth
by less than one percentage point and decreases global poverty. Simply put, foreign aid has
shown impeccable results in helping with economic development. However, it brings the
question to what extent does the GDP of a country increase. My research will also answer
questions on the conflicts between the fall in unemployment and inflation, rise in inequalities,
and poverty which will aid me to come to a better conclusion.
In my report, I will take these arguments under consideration to derive the effectiveness of
foreign aid to developing countries. I will also be analyzing the pathway of the aid that travels
through the economy and which aspects of the economy it affects the most.

Subsequently, I will move to the political aspect of distributing foreign aid. Here I will examine
the different methods developed countries use to decide who needs aid and how much is
allocated per the current government of the donor. At this stage, it is important to understand
Amna kashif
Candidate no: 0314
that the belief that developed countries should provide aid permanently and take developing
countries under their responsibility is both unfair for the donor’s government and
condescending. Some economists' term is similar to ideas of colonialism, where the main
objective was to “help people” as well. This raises the question of whether developed nations
give aid to the poor to either to have an invisible hold over their government or make developed
countries come under their blanket of “protection” during times of crisis to prevent opposers to
gain control of the land. However, sometimes donors may attach strings to the agreement
concerning loaning aid to developing countries in terms of certain clauses to gain influence in
the country or interfere in their economy or policies. Taking the Port of Hambantota as an
example, I will look at the causes and reasons for the Sri Lankan port transfer to China as debt
repayment and will further question the extent of control the donor in this case has gotten
control over major trade transactions. I’ll further question the plausibility of complacency after a
recipient receives aid, including developing countries like India, Pakistan, Nigeria, etc. I will also
assess the claim of the lack of proper distribution of aid due to corruption and the extent of
whether aid funding comes with attached conditions, where such commitments may thus map
more consistently to changes in recipient behavior.

Finally, I will be studying the humanitarian effects of foreign aid and how its impact on society
can be categorized as beneficial or not. In many developing countries, foreign aid is most of the
time given in terms of humanitarian aid in terms of money especially during times of calamity.
For example, the earthquake that hit Haiti, which left the country almost indisposed and its
infrastructure destroyed, was rebuilt with the help of multiple programs designed by developing
countries. Similarly, an increase in employment and a greater standard of living can correspond
with an influx of foreign aid. Yet, several environmental and social problems came with the
increase of development programs led by foreign capital. Socially, the after-effects of foreign aid
hinder the foundation of the community as many reports show an increase in poverty, a decline
in the standard of living, and civil unrest in Africa despite being the largest recipients of aid. For
example, after the construction of the Kariba Dam in Zambia, the relocation of the tribes that
initially inhabited the area where the dam was built, was a difficult affair after people protested
for their homelands. This then brings the debate of whether economic growth outweighs social
and environmental problems caused by the introduction of aid. I will assess the multiple events
concerning this debate to help me come to common ground as to whether aid benefits society
compared to the economy. This then brings the macro- economical conflict to the front: The
conflict between Economic Growth and the Environment.
Seeing the multiple factors brought by this perspective of the debate, I will discuss the extent of
their effects on developing countries and seek out which side holds greater weight to support
my research’s argument.

In conclusion, I will suggest alternate solutions after assessing these three perspectives and will
determine whether Foreign Aid is beneficial to developing countries or not. Using a wide array of
sources I will derive my judgment from multiple arguments and evidence keeping in mind the
credibility of the source, its publication, and the author's credentials. Moreover, I will be using
sources from trustworthy platforms such as transnational organizations' reports, research
papers, studies, economic studies, etc.
 Amna kashif
Candidate no: 0314

Sources

1. The argument concerning the economic side of aid

https://www.weforum.org/agenda/2014/11/how-effective-is-foreign-aid/

https://www.cgdev.org/page/aid-pakistan-numbers

https://www.grin.com/document/104204

2. The argument for Political Influence caused by aid

https://www.jstor.org/stable/26271398

https://unu.edu/events/archive/conference/foreign-aid-and-domestic-politics-in-recipient-
countries.html

https://www.researchgate.net/publication/
334701579_The_Politics_of_Aid_from_the_Perspective_of_International_Relations_Theories

3. Is Aid socially and environmentally beneficial

https://www.thenews.com.pk/print/302793-is-us-aid-tied-to-human-rights

https://www.hrw.org/news/2012/08/06/deadly-aid

http://www.jed.or.kr/full-text/31-1/31-1-5.PDF