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Home Field Trips Foreign Aid Tour The Benefits of Receiving Aid

Theories

The Benefits of Receiving Aid

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What motivates a country to seek and accept financial assistance from abroad?

There are three main reasons:

1. Economic Reasons
2. Political reasons
3. Moral reasons

Economic Reasons
Clearly the most important reason why countries seek and accept aid is for the purpose of economic development. There are three several economic reasons why Zambia has accepted aid:

• To improve the investment climate, develop human capital, promote entrepreneurship, as well as provide direct support in fostering trade
• To enable payment of interest on foreign debt
• To supplement the lack of domestic resources such as foreign exchange
• To enable infrastructure changes to be made to the economy such as dams and roads

Donors and recipients do not always agree about the purpose of aid. Donor countries have based their ideas of economic development on neo-classical models, that prescribe investment in physical or human capital as a means of producing economic growth. For recipient countries, aid is a valuable source of foreign exchange with which to help reduce balance of payments deficits worsened by debt servicing and poor terms of trade. In countries like Zambia with a large parallel economy and narrow tax base, foreign aid is also an important addition to government income.

There is therefore also disagreement about the amount and the conditions placed upon recipient country by the donor country that lends it. Recipient countries would prefer to have aid in the form of grants with no conditionality, such as the structural adjustment programmes of the World Bank, and not tied to a donor country's exports. Donor countries often argue that this results in resources being 'wasted' on military goods or supporting inefficient bureaucratic government enterprises, such as extravagant parliament buildings, or being corruptly appropriated by government officials.

Political reasons
In some cases foreign aid is seen as being necessary in order to maintain power. Often foreign aid in the form of military goods provides the power base that suppresses opposition and maintains the existing government in power. The ending of the Cold War between NATO and the Soviet Union has contributed to the fall in Official Development Assistance (ODA) to the continent of Africa, while Israel and Egypt, for example, were the two major recipients of ODA in 2003.

Moral reasons
Many people within the Less Developed Countries (LDCs) and the More Developed Countries (MDCs) consider that the MDCs have a moral responsibility to provide development assistance for the poorer countries. This may be because of basic humanitarian reasons or a feeling that the colonial powers such as the UK that occupied countries such as Zambia have a responsibility to redistribute resources, having exploited so many of the resources of the LDCs during colonisation.

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Related Glossary Items:
Infrastructure
Less Developed Countries (LDCs)
MDCs