Foreign Aid Effect on the Country’s Economy

An ongoing debate surrounds the provision of financial aid to the developing countries that lack domestic resources. Over the decades, the researchers have revealed the pieces of evidence of both the positive and negative influence of foreign aid on the economies of the recipient states.¹ The proponents of foreign aid as a source of the capitalist state are that it adds up to the domestic savings and provides valuable resources such as access to international markets and the greater inflow of technology and skills.² Its opponents mention that foreign aid facilitates the development of corruption and distorts the allocation of domestic income.³ Moreover, the analysts concluded that foreign aid’s effectiveness is linked to factors such as the quality of domestic policies, external circumstances, governance, and even historical development.⁴ Foreign aid as a crucial source of capital is very important for the developing countries of Africa, Asia, and even some European states affected by internal instability.

One of the recipients of foreign aid from various countries is Ukraine, torn apart by the civil war and economic crisis. The list of problems faced by Ukraine is long: the downfall of currency value, destroyed infrastructure in the war zone, corruption, and lack of foreign investment.⁵ The country has been dealing with one economic crisis after another ever since the collapse of the Soviet Union in 1991.⁶ As estimated by the IMF, the amount of the combined loans provided for Ukraine by the IMF, the USA, the E.U., and the other sources equals about $40 billion.⁷ However, no significant improvement has been observed. The previous deals with the IMF (2005, 2010, and 2013) had no impact or were fully consumed by the country as substitutes for domestic income.

Bibliography

Ekanayake, E. M. and Chatrna, Dasha. “The effect of foreign aid on economic growth in developing countries.” Journal of International Business and Cultural Studies (2009): 1-13.

Hatemi-J, Abdoulnasser, and Irandoust, Manuchehr. “Foreign Aid and Economic Growth: The Evidence from Panel Cointegration” Journal of Economic Development 30, no. 1 (2005): 71-80.

Osipian, Ararat L. The Impact of Human Capital on Economic Growth: A Case Study in Post-Soviet Ukraine, 1989-2009. London: Palgrave MacMillan, 2009.

Veiderpass, Ann, and Andersson, Per-Åke. “Foreign aid, economic growth and efficiency development.” SADEV Report 1, (2007) : 1-35.

Woehrel, Steven. “Ukraine: Current Issues and U.S. Policy.” CRS Report, (2015) : 1-21.

Footnotes

1. E. M. Ekanayake and Dasha Chatrna, “The effect of foreign aid on economic growth in developing countries,” Journal of International Business and Cultural Studies, (2009): 2.
2. Abdoulnasser Hatemi-J and Manuchehr Irandoust, “Foreign Aid and Economic Growth: The Evidence from Panel Cointegration,” Journal of Economic Development 30, no. 1 (2005): 72.
3. Ibid.
4. Ann Veiderpass and Per-Åke Andersson, “Foreign aid, economic growth and efficiency development,” SADEV Report 1, (2007): 4.
5. Steven Woehrel, “Ukraine: Current Issues and U.S. Policy,” CRS Report, (2015): 1.
6. Ararat L. Osipian, The Impact of Human Capital on Economic Growth: A Case Study in Post-Soviet Ukraine, 1989-2009 (London: Palgrave MacMillan, 2009), 54.
7. Steven Woehrel Ibid.