Abstract
This research paper would investigate the impact of foreign aid on developing countries looking at their local economic infrastructure. (Henrik & Finn T, 2000). It identifies foreign aid as a key tool in the development of many countries. This paper uses mainly library research. References were made to Nepal, Kenya and Uganda. This paper also inspects the connection between aid distribution and governance of recipient countries in determining the relationship between the effect on the local economies and income of the populations. The paper goes further to investigate whether aid allocation is influenced by policies and governance. It shows that while aid can be good in some cases it can make people slaves to other nations. It also gives us an insight as to what should be considered to avoid foreign aid from going to the wrong people. Finally, this paper warns us of the dangers associated with overreliance on foreign aid thus warning nations about the possibility of passing the liability of this aid to future generations.
Introduction
In the world today, developing countries face numerous problems some of which are poverty, natural disasters, financial crises amongst others and this is where foreign aid steps in to help these developing countries come out or stabilize their situation. Foreign aid is the financial flows, technical assistance and commodities given by the residents of one country to the residence of another either as grants or as subsidized loans. When a country receives aid, it is because of a specific, condition and thus requires assistance to move or continue. The issue of foreign aid is not a simple as it may sound this issue has been under controversy as to whether or not it is being used in the most efficient way by those who receive it and if not is that the reason why these countries cannot attain economic growth. These countries receive foreign aid from the IMF, World Bank or by the United Nations. Together these institutions have spent trillions of dollars on loans to improvished nations all over the world (Easterly, W, 2006).
The reasons why these places are not better off since so much money is being allocated towards them is questionable. Most developing countries have abundant resources but still have constraints in development. This paper will investigate the impact of foreign aid on developing countries and the impact of foreign aid towards growth of these developing countries by looking at their local economic infrastructure. (Svensson, 1998). This study has been conducted with diverse findings.
Research Hypothesis
Foreign aid has had more of a negative impact than a positive one on the economic emancipation of developing countries.
Research Objectives
To investigate the economic effect of foreign aid based on the income of the locals of developing countries. Most developing nations face challenges in the provision of earnings for their citizens. This can arise from lack of adequate infrastructure and industries to create jobs.
To identify how foreign aid has affected the local economy and the economic activities of developing countries. As much as developing countries have received continued aid, results of the assistance vary from one nation to another. This research paper seeks to find out why the disparity in outcome in the nations. (Bruno & Easterly, 1998)
To study if the foreign aid has had success in the aim it was intended for. When donors give assistance it is usually as a result of an assessment. Once the aid has been disbursed, the recipient nation has the mandate of implementing its projects as specified in the aid application. This research paper seeks to find out if this arrangement has been an accomplishment in the developing countries. (Easterly, 2006.p.401)
Research Methodology
The method used for data collection is based on journals and books on economic growth in general and developing countries specifically will be used. The library research will have the larger share of the data while the local primary records will take a smaller portion. (Michael, 1997.p.312) Comparison of data collected will be used to base the determination for my recommendations and conclusions.
Literature Review
Foreign countries have been helping developing countries since the colonial era and still are today. This assistance could be in monetary terms or trade exchanges. Foreign countries have developed many challenges in doing this and economist Easterly refers to this as the white man’s burden. Efforts made by foreign countries main intention was to help but records show that this isn’t the case they are actually more damages which can be referred to as the twin tragedy. First, there is global poverty in this situation people live miserable lives and die early deaths.eg Africa suffers loss of its people due to inadequate medical assistance to the people. Second, after half a century trillion of dollars was given as aid and there is little evidence to show for it. (Michael, 1997.p.314).
This is as a result of poor governance and policy formulations by the recipient countries. The donors also are to blame as they offer money to corrupt government officials over and over again. It is observed that most developing countries continue to be poorer and poorer despite being given more and more assistance. In this case hardship is localized and should be approached differently in order to gain an advantage to this situation. Africa for example has lost promotion by its own negligence, capitalists countries are against business, deaths are more vicious than ethnicity, and leaders scrounge on the West (Ed.Calderisi, 2007, p.132).
Foreign aid has had diverse effects in developing countries all over the world. In Africa there has been mixed effects for example there is a case in Somalia where non-governmental bodies have unsuspectingly aided an autocrat to grow a fiscal and biased command. Others have offered aid to ethnic splinter groups that caused bloodbath in countries such as Rwanda and Burundi. Dishonest politicians have also united collectively in cruel personal welfare. It is clear that what was first intended to be of benefit, is turning to be a disaster. (Alvi, Mukherjee & Shukralla, 2008)
Studies have been carried out to determine the effectiveness of foreign aid to developing countries. Nepal has been getting support since the beginning of 1950’s sponsoring almost all material infrastructures. This example shows that aid thrives only in a good policy setting. Physical features of the population growth in Nepal made the nation dependant on financial assistance. The country also had aid unsuccessful practice due to bad governance conquered by a select few of warfare backdrop (Badri, 2009)
Foreign aid direction is dictated by political considerations, fiscal needs, and policy show of beneficiaries. Colonial history and opinionated union are important in the decision making of overseas aid provision. Countries that have a democratic system tend to be favored. Express foreign investments are responsive to economic enticements, especially superior policies and guard of possessions rights in the recipient country. The US Agency for International development is a bureau, which gives development aid to developing countries. The US has had an agenda of advancing US policy interests in growing equality and open trade. However, this has been observed by critics as a way of prizing political associates. (5th Ed. Perkins, 2007, p.708) The overall sustainability is dependent on political will which tends to lack in many states. In the education for all policy, there has been fault in its implementation. The government uses the political will to invest in education if it will keep it in power. This is not the reason why the free education for all initiative was started. (Easterly, 2006.p.400)
This has led to poor implementation of the policy in many developing countries. Owing to that there has been an imbalance of trade caused by the foreign aid. Donors pump in substantial amounts of money to get policies implemented but end up short of their objectives. It has made Africa dependent upon aid for growth destroying local novelties hence paucity. In Kenya, the minister of foreign affairs scaled down aid as helpful but with restrictions. He said they want to be friends with all and desire aid from everyone but not help from whichever individual or nation, which will, provide stipulations. (Bruno & Easterly, 1998) This has been observed when Kenya decided to seek assistance from China in the East. The shift was as a result of the aid being given with no strings attached.
Data Analysis
The data can be analyzed based on the literature gathered only. It is evident that the results are poor and the foreign aid has not helped developing countries. This confirms the hypothesis of this research that indeed, foreign aid has had more of a negative than positive impact on the economic development of the developing countries. Owing to the information cited by the research findings, most aid has created divisions and greed among tyrants of developing countries. (Svensson, 1998). Foreign aid that does not allow the locals to use their ingenuity but sustains them is detrimental to a society. Most of the developing countries have resources that can be utilized. There is little or limited will to use these resources, as there is a way out, which is aid. (5th Ed. Perkins, 2007, p.710)
Research Limitations
The research was limited to a narrow scope of data due to time and budgetary constraints. The findings although factual, need to be investigated further with more statistics. Unavailability of electronic articles and access to data in local government institutions also bound the research. Methodology used in data collection was the cheapest but unreliable. (Alesina, 1998) Secondary data tends to give different result from primary data.
Research Recommendations
Further study on the effects of foreign aid to developing countries should be done. Since results of the foreign assistance differ from state to state, a continuous learning needs to be carried out to know the reasons that cause the disparities. The donors of foreign aid exist in blocks and can institute study on why the aid has not met some of the intended purposes.
Policies of the foreign aid should be revised to curb abuse from recipients who are selfish. A stringent procedure can be developed that limits the exploitation of aid at the expense of the masses by putting guidelines on the methods of use. Direct assistance to the area of need and monitoring can help in effective use of the aid. (World Bank, 1998).
Direct aid is more beneficial and should be encouraged as it reaches its intended receiver. Developing infrastructure and or local industries directly benefits the needy recipient. The engineering of roads or dams for example can benefit a local directly and efficiently. (Badri, 2009)
Foreign aid should not be encouraged as this will be a burden to the future inheritance of the debt. Generations that inherit the developing countries have to bare the load of arrears accruing from the past age group. This makes them struggle to pay and try to meet the current challenges. This retrogressive venture should not be encouraged. (World Bank, 1998).
Information on the effect of the foreign aid to developing countries should be shared more frequently to assist countries that are stuck in the cycle. Developing countries that receive foreign assistance should extend avenues in which they exchange information on use of the aid. This will help members to get out of the dependency on foreign assistance and build up a strong revenue base for growth. (Badri, 2009)
Conclusion
Assistance has always been good in the society in other areas but I think that the negatives that I have encountered in my research have outweighed the benefits. For example in East Africa there has been an increased assistance in the control of malaria by foreign medical assistance. This noble cause is welcomed but it is not self sustaining due to the poverty surrounding the people. Most diseases suffered by the people in the developing nations are as a result of poor sanitation and habitation. Overcrowding and pitiable living conditions has caused people to develop ailments that could be prevented. Dependency on assistance can be detrimental to the social order because it can cause lack of ingenuity in the development for these developing countries. It takes great leadership for a country to develop its local industries. Countries like India which were developing countries in the early 19th century have become economic giants due to focus on local industrial growth. Societies that rely on help always put their sovereignty at risk as the giver can change to be an oppressor. Although the world needs to depend on one another for development, the trade balance should be checked so as to shield coming generations from inheriting liability. (Easterly, 2006.p.401)
Foreign aid to developing countries has not all been a bad omen all through. Some states have developed due to this assistance growing to give the individuals economic stability. Africa and other developing countries have grappled with infrastructure development and without aid most countries will not make their own. Engineering roads, dams, and other large projects require large sums of money to expand. Most developing countries find realizing the money challenging and resort to aid from foreign donors. This is noble and should be encouraged as without reliable infrastructure it would be cumbersome to do business. Exchange of ideas and exports have also enhanced development and should be encouraged (Alesina, 1998).
With the growth of the world to the information age, developing countries should use the internet to expose their products to the world. It requires fewer resources and is much effective to seek business online. Expansion of local industry and development of human skill can spur the growth of a country. Numerous cases of emerging economies can be sighted in Africa. Angola is believed to be one of the fastest growing economies due to its sound governance. More examples exist in other developing countries and should be encouraged as in India and Rwanda recently. These countries have recorded a steady growth in annual profits to their citizens. This can be attributed to the local growth and development of industries and trade. Good governance has also fueled the increase in the countries. (Easterly, 2006.p.401)
List of reference
Alesina, A. (1998).Who Gives Foreign Aid to whom and Why? Journal of Economic Growth, 5: 33–63.10512:0:.8.
Alvi, E; Mukherjee, D.’ Shukralla, E.K. (2008). Aid, Policies, and Growth in Developing Countries. A New Look at the Empirics. Southern Economic Journal, 74(3): 693-706.
Badri, Prasad, Bhattarai (2009). Foreign Aid and Growth in Nepal. An Empirical Analysis. The Journal of Developing Areas. ABI/INFORM Global database. 42(2), 283-302.
Bruno, M & Easterly, W. (1998). “Inflation crises and long-run growth,” Journal of Monetary Economics, Elsevier. 41(1). 3-26.
Calderisi, R. (Ed). (2007).The Trouble with Africa. Why Foreign Aid Isn’t Working, St Martins, 190-249.
Easterly, R.W. (Ed). (2006).The white mans burden, Penguin press, 400-436.
Michael, M. (1997).The Road to Hell, Simon & Schuster, 300-320.
Perkins, H.D (5th Ed). (2007).Economics and Development, W.W.Norton & co, 598-761.
Svensson, J. (1998). “Foreign Aid and Rent-Seeking.” World Bank Policy Research Paper 1880.
World Bank (1998). “Assessing Aid: What Works, What Doesn’t and Why.” Oxford University Press, New York.
Appendix
Below is a table showing the impact of foreign aid to the Economy of Kenya, Uganda and Nepal.
The graphical representation on the Impact of Foreign Aid in the economy of Kenya, Uganda and Nepal.
On secondary data from library and primary data from government institutions in my local country.