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Why foreign aid fails
Prokopijevi? Miroslav
Panoeconomicus , 2007, DOI: 10.2298/pan0701029p
Abstract: The main point of this paper is that foreign aid fails because the structure of its incentives resembles that of central planning. Aid is not only ineffective, it is arguably counterproductive. Contrary to business firms that are paid by those they are supposed to serve (customers), aid agencies are paid by tax payers of developed countries and not by those they serve. This inverse structure of incentives breaks the stream of pressure that exists on the commercial market. It also creates larger loopholes in the principle-agent relationship on each point along the chain of aid delivery. Both factors enhance corruption, moral hazard and negative selection. Instead of promoting development, aid extends the life of bad institutions and those in power. Proposals to reform foreign aid – like aid privatization and aid conditionality – do not change the existing structure of the incentives in aid delivery, and their implementation may just slightly improve aid efficacy. Larger improvement is not possible. For that reason, foreign aid will continue to be a waste of resources, probably serving some objectives different to those that are usually mentioned, like recipient’s development poverty reduction and pain relief.
Foreign Aid and Economic Development
Lawrence McMillan
School of Doctoral Studies Journal , 2011,
Abstract: This literature review focuses on research studies that correlate the effects of aid on the macroeconomic development of countries in the third world. I undertake the review to assess whether researchers have strongly established, based on empirical evidence, that there is any link, whether positive or negative, between aid and economic growth. The Introduction section provides a more detailed rationale for this review. In the subsequent sections, I provide a short description of the econometric models commonly used by researchers in establishing the relationship between aid and growth. I also discuss the body of research that I have looked into, their basic features, general conclusions and some key criticisms against them. I devote a separate section identifying the gaps I observed in the current research and finally conclude that although there is a wealth of research done on the impact of foreign aid on growth, these appear to be inconclusive due to methodological problems.
Foreign Aid and Economic Growth
Farheen Fatima
Open Access Library Journal (OALib Journal) , 2014, DOI: 10.4236/oalib.1100632

This paper represent the study about the impact of foreign aid on the economic growth of Pakistan by taking into consideration previous studies done on the same topic for different developing countries. As results show that if aids are properly allocated in desired section which in real need development than it can prove fruitful but normally aid given to such countries always have some objective behind that with already defined section where that aid should be utilized, but if such countries are given free hand to use them they can use them in their desired section and can have more appropriate and better results in their development. Also in such countries there come the prospect of corruption if corruption is properly removed form the roots of that economy than it necessarily have better developmental result on its economy.

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa  [PDF]
Kin-Boon Tang, Diya Bundhoo
Theoretical Economics Letters (TEL) , 2017, DOI: 10.4236/tel.2017.75099
Abstract: This study aims at understanding the impact of foreign aid on the economic growth of the Sub Saharan African region. Despite being the largest foreign aid recipient in the world, the region is the poorest with the lowest Human Development Index (HDI) and Gross National Income (GNI) per capita. This raises serious questions about the effectiveness of foreign aid to the economic growth and development of the region. As such, we examine the relationship between foreign aid, determined by the official development assistance (ODA), and the economic growth rate of the Sub Saharan Africa’s ten largest recipients of foreign aid, for a 23-year period from 1990 to 2012. These ten countries include Ethiopia, the Democratic Republic of Congo, Tanzania, Kenya, Cote d’Ivoire, Mozambique, Nigeria, Ghana, Uganda and Malawi. We find that aid by itself does not have significant impact on economic growth. However, the variable aid interacted with the policy index was found to be statistically significant and positive, which means that aid tends to increase growth rate in a good policy environment. Subsequently, when we include the institutional quality index and its interaction term in the model, we find that institutional quality has a positive and significant impact on growth; however, none of the aid variables was significant. We also test the two-gap growth model which states that foreign aid enhances economic growth through investment and imports. The results show that foreign aid is a good ingredient for supplementing investment and imports requirements in these ten countries. We believe that given foreign aid is conditional on the economic, political and institutional environment of the recipient country, this can explain why aid effectiveness is insignificant in the Sub Saharan Africa region where bad governance is a core issue on the region. Therefore, respective governments, donor agencies, and policy makers should take into consideration these multiple aspects when undertaking aid-financing activities.
Foreign Finance aid for Development Assistance
Vladislav V. Bogovin,Evgeniya V. Vidishcheva,Maria Ransberger
European Researcher , 2013,
Abstract: This article is devoted to the foreign finance aid. It introduces purposes, volumes and conditions of providing additional financial resources. The success of aid depends on steps which are implemented in the recipient country. Also there are many bilateral and multilateral donor organisations transferring monetary resources to developing countries
Foreign Aid to Developing Countries an Analytical Profile of Bangladesh
Jahangir Alam,S.M. Nasrul Qadir
Pakistan Journal of Social Sciences , 2012,
Abstract: Foreign aid is known as an outcome of the cold war between the USA and the (former) Soviet Union. Bangladesh, as one of the least developed countries, has been receiving a fair amount of aid but a very slow and steady outcome of foreign aid has been observed. Although aid has visible and invisible impacts, Bangladesh has, somehow, failed to achieve either of them. The article tries to find out the real impacts of foreign aid in the economy. At the end, some causes of improper utilization of aid have been shown.
Foreign Aid Strategies: China Taking Over?  [cached]
Kristian Aamelfot Kj?llesdal,Anne Welle-Strand
Asian Social Science , 2010, DOI: 10.5539/ass.v6n10p3
Abstract: Over the past decade China has re-emerged as an important source of foreign aid for African countries. Providing aid on terms of its own choosing, China challenges the current foreign aid paradigm in four main ways: The donor-recipient relationship is challenged by a partnership of equals; The modes of provision are challenged by China’s focus on aid that is mutually beneficial; The use of conditionalities is challenged by China’s insistence on sovereignty and non-interference in domestic affairs; Multilateralism is challenged by China’s preference of going the major foreign aid projects alone. This article argues that China’s aid program is not likely to undergo drastic change, and that the effects of China’s foreign aid on the traditional donors are already discernible on the African continent. The potency of these challenges might herald that the Chinese approach will provide the frame of reference for foreign aid in the future.
The 'Honne-Tatemae' Dimension in Japan's Foreign Aid Policy: Overseas Development Aid Allocations in Southeast Asia  [cached]
FURUOKA, Fumitaka, and KATO, Iwao,Kato, Iwao
Electronic Journal of Contemporary Japanese Studies , 2008,
Abstract: This paper employs the socio-psychological concept of 'honne-tatemae' to analyse Japanese foreign aid policy. Tatemae refers to the 'fa ade' or 'appearances' while honne signifies the 'real intention'. The Japanese government has pledged to use foreign aid to promote economic development and political stability in developing countries. On the other hand, Japan's official development assistance (ODA) program has been repeatedly criticised for being employed as a tool to promote Japan's own commercial interests. In this context, altruism could be a superficial principle of Japanese foreign aid policy which forms the 'tatemae' dimension while selfishness could represent a true hidden motive for the aid giving and form the 'honne' dimension. The present paper uses panel data analysis to examine which element – honne or tatemae – has influenced the decision-making process of allocation of Japan's ODA to Southeast Asia. The findings indicate that the volumes of Japan's exports to and income levels in the aid recipient countries had a significant influence on foreign aid distribution. The Japanese government tended to allocate bigger amounts of money to Japan's major trade partners in ASEAN. At the same time, the poorer nations in the region received more of Japan's ODA compared to the comparatively well-off nations. In other words, both altruism (tatemae dimension) and selfishness (honne dimension) characterise Japan's ODA flows.
Muhammad Asif
Economics and Finance Review , 2011,
Abstract: This article investigates the long run and short run effect of exchange rate changes on foreign aid of Pakistan by applying unit root and cointegration analysis. The data set includes annual observations for the period 1973-2010. Moreover, this study examines four alternative but equally plausible hypotheses, each with different policy implications. These are: i) foreign aid cause Real Exchange Rate (the conventional view), ii) Real Exchange Rate cause foreign aid, iii) There is a bi-directional causality between the two variables and iv) Both variables are causality independent (although highly correlated). The empirical evidence findssignificant positive relationship between exchange rate changes and foreign aid in long run, as well as in short run. Both in the long and short run, foreign aid is affected by exchange rate changes.
Foreign Aid Growth and Determinants in Nigeria: An Autoregressive Framework
P.B. Eregha
Pakistan Journal of Social Sciences , 2012,
Abstract: This study examines the growth and determinants of foreign aid allocation to Nigeria. This study is necessitated by the fact that most studies examines this issue with either panel data analysis or cross country analysis framework, which do not really show specific country characteristics and moreover, there is no time series analysis on the determinants of foreign aid allocation in Nigeria. The study employed Ordinary Least Square method of estimation with an autoregressive model to examine the short run and long run coefficients of the determinants. Data for the study were mainly secondary source extracted from the World Development Indicator, 2007. The study revealed that both at the short run and steady state, national income per capita, total debt service, population and domestic saving all have positive impacts in the determination of foreign aid allocation to Nigeria. However, net barter term of trade has negative impact on it. The study then recommends that policies aim at reducing the dependency and proper use of foreign aid be implemented.
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