7 Effects of aid

The effects of aid

Official aid focuses on development of the modern sector rthereby increasing the inequality gap between rich and poor and the rich grow richer still. Foreign aid is a force for anti-development.

Largely appropriated by corrupt bureaucrats.

Aid weariness > donors anted to focus on own domestic economic problems when they realised that their donations were benefitting small elite groups richer than themselves.

Can reduce extreme poverty.

The public in recent years have grown more willing to donate development assistance via NGOs (charities got popular).

US and UK announced significant increases in aid early this century.

Promising progress to be made: G8, UN meetings and Paris Declaration.

Relationship between aid and growth. 3 views.

1) Aid has had a positive affect on growth but with diminishing returns. Also has a positive effect on development outcomes such as health, education and the environment. The best documented area is health.

2) Aid has no affect on growth and may actually undermine it. e.g. food aid can sometimes undermine local food production if an influx of food drives down prices.

3) Aid has a conditional relationship with growth. Works in some circumstances and not others. 

Aid works best in countries with good policies and institutions. Donors should choose more selectively in order for aid to be effective.

Aid is weakened by donor domination. Recieveing countries should push for a more country led approach > recipient governments have a stronger role / participatory approach involving more NGO action.Aid can keep bad governments in power for too long.

Undermines incentives for saving.

Decreases government emphasis on tax collection.

Lack of moitvation for innovation and improved private sector production.