Economic Aid to Developing Countries

Definition: Aid involves economic assistance from one country to another. Usually, aid refers to assistance from the developed world to LDCs – less developed countries

Aid can take various forms:

  • Debt Relief – Forgiving debt can save LDCs annual interest payments and leave them more resources for internal investment
  • Direct AID- giving food, money and health care supplies directly to the countries in need
  • Indirect Aid. Financing the building of infrastructure and communication networks which enable countries to develop
  • Cheap Finance. Schemes like Micro aid finance give affordable loans so that countries can benefit from more local entrepreneurship
  • Tied Aid. Aid which is dependent on reciprocal benefits such as agreeing to buy goods and services from the donor country.
  • Untied Aid. Aid given without any strings attached.
  • Bilateral aid. Aid given directly from one country to another
  • Multilateral aid. Aid given from one country to an international organisation which is then distributed to a variety of different countries. For example, the Red Cross and Oxfam.

The disputed effectiveness of aid

aid-vs-trade

  • Aid to poor countries is a controversial issue. Supporters argue targeted aid can help countries deal with natural disasters and improve infrastructure.
  • Critics of aid argue that it can either encourage aid dependency or be misused and misdirected.
  • The effectiveness of aid depends on how it is managed and how it is distributed.
  • Critics of aid argue encourage trade is a more powerful way to increase economic welfare because this encourages self-sufficiency and is more sustainable in the long term.

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