AID as a dolphin loop in the economic development.

AID
is the help, mostly economic, which may be provided to communities or countries in the event of a humanitarian crisis or to achieve a social economic objective. Humanitarian aid is therefore primarily used for emergency relief while Development aid aims to create long-term sustainable economic growth. Wealthier countries typically provide aid to economically developing countries.Foreign aid can also be in form of international millitary assistance

WHY DEVELOPED COUNTRIES GIVE AID

Although its not clear why donor countries give foreign aid, there is a possibility that the following are the reasons why they do it:

Moral obligation to the poor-the desire to alleviate worst physical manifestation of poverty in the world.

Threat to national security- the widening gap between rich and poor nations pose a security threat as the poor may rise against the rich therefore causing unnecessary wars. The aid tries to bridge the gap between the rich and the poor.

To win allies-countries like Japan give more aid to countries that vote in tandem in UN voting

Expanding world trade-foreign aid may act as incentive to make a country become a stable consumer for the donor’s exported goods therefore widening the international customers

To promote democratization-donor countries give aid to countries exercising democracy and fail to give countries with dictatorship governments e.g. Zimbabwe

To promote literacy-to extend basic education and increase manpower training in skills which are basic to development.

To promote human rights-donor countries usually give aid to developing countries to improve the rule of law and good governance. They withhold aid for those countries, which engage in gross violation of human rights.

To reduce environmental degradation-developed countries give aid to promote environmental management and conservation of natural resources. This reduces global warming and other associated environmental problems

To alleviate effects of natural disasters-foreign aid is given to reconstruct countries adversely affected by natural catastrophe’s e.g. tsunamis, wars e.g. In Middle East countries like Iraq and Afghanistan.


WHY DEVELOPING COUNTRIES ACCEPT AID

Increasing Resources for Investment. The main macroeconomic mechanism by which aid can promote growth is to enlarge the pool of capital available for investment and growth. Even in a favorable policy environment, however, foreign aid may permit domestic resources to be diverted from investment to consumption, with no net effect on growth. Empirical studies of this issue, as was indicated earlier, have yielded inconclusive results. Studies of individual countries are equally inconclusive: aid seems to contribute to saving in some cases but not in others.
Providing Public Goods. Foreign aid might help raise the level of investment in the economy by easing the constraints on public funds available for necessary public investments--that is, goods that are important for production and for which the returns cannot be captured and used to repay borrowing; public investments may include infrastructure such as rural roads. Foreign aid might also limit the strains on the domestic tax base and prevent costly distortions. For example, the recipient might levy tariffs to fund those public investments if it does not receive aid.
According to the Agency for International Development, the success of foreign aid in supporting public investment also varies widely. The Inter-American Highway in Central America was funded largely through foreign aid (though it was not called that at the time), and it has contributed enormously to improving the prospects of growth for Central American countries. But such projects have also failed. Many aid-financed projects languished after their completion, because the recipient government was unwilling or unable to provide adequate maintenance.
Increasing Human Capital. Foreign aid might be able to help a country develop its human capital--for example, by supporting elementary education or basic health care. Investment in human capital in developing countries is often more difficult to finance than are physical capital projects. Even in relatively rich countries, private investors are wary of lending for skills and education without a government guarantee for a return on investment. Foreign aid, however, may be able to provide targeted funds for enhancing human capital and thereby raise the economy's stock of skills and, perhaps, stimulate growth.
Foreign aid can claim some credit in this area. Aid resources have helped strengthen agricultural production by funding new crop varieties, irrigation programs, and extension practices. They have also played a role in sponsoring research, education, and immunization programs that have led to the control of various diseases such as smallpox, polio, diphtheria, and measles.
Ingredient of development-it supplements scarce domestic resources, helps transform economy structurally and contributes to the achievements of less developed countries take-offs in to self sustaining economic growth e.g. Taiwan, Israel which took-off as a result of foreign aid.
Military Assistance. Provides grants and loans that enable the government to purchase military equipment from the donor countries. Aid provides grants to countries for training foreign military officers and personnel. Funding for military-to-military contact programs and some peacekeeping operations also belongs in this category
Facilitating the Transfer of Technology. Another channel through which aid might foster growth is technical assistance and technology transfer. That type of aid promotes growth not by accumulating greater resources but by making existing resources more efficient and effective. Technical assistance programs may also include educating and training government officials who play a large role in creating the policy environment and using foreign aid. Helping developing countries to organize institutions that protect property and minority rights is another example. As in other cases, the success of such programs will probably depend on the political and economic environment in which they operate. For example, according to some analysts, "assistance to encourage agricultural production had a substantially higher payoff in the presence of realistic exchange rate and trade policies.

IMPACT OF FOREIGN AID

Aid has serious, distorting consequences in the political life of recipient countries. Aid is generally transferred to the government of those countries, which tends to increase the government's power, resources, and patronage relative to the rest of society and, consequently, the stakes in any struggle for control of that power. People will spend relatively more of their time focused on the outcome of political and administrative decisions, thereby diverting attention, energy, and resources from more productive outbreak of civil armed conflict.

In many cases, foreign aid has sustained governments in their pursuit of economically counterproductive political and economic policies. Such policies include the persecution of particular groups, restrictions on private trade and the inflow of private capital and enterprises, confiscation of property, price policies that discourage agricultural production, and the expropriation of foreign capital and enterprises. To add insult to injury, when the pursuit of such policies worsens the economic performance of an aid recipient, the country may qualify for still more aid because its situation is deteriorating.



LUCIEN BUTUBA