Trade vs Aid

Topics: Economics, Development, Developed country Pages: 13 (3135 words) Published: October 4, 2014
Econ Essay
Foreign aid vs. international trade is a long lasting debate as to which strategy leads to the greatest level of economic development. Foreign Aid is defined as any assistance that is given to a country not provided through normal market forces. There are numerous forms of aid, from humanitarian emergency assistance, to food aid, military assistance, etc. Development aid has long been recognized as crucial to help poor developing nations grow out of poverty. International trade is the exchange of goods or services across international borders. Economic development as defined by AmartyaSen, 1998 Nobel prize laureate, “requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation.” (1)

In 1970, the world’s affluent countries agreed to give 0.7% of their GNI (Gross National Income) as official international development aid, annually. Since then, these rich nations have rarely met their actual promised targets. “The US is often the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target.” The two charts below, reproduced from the OECD publications (2012) shows aid granted in constant dollars and as a percentage of GNI. Both support the conclusion regarding the failure to meet agreed upon aid commitments and the level of decreasing donations. (2)Billions have been donated, but it appears that Africa which has received the most aid remains a continent impoverished. As Dambisa Moyo in the Wall Street Journal writes “money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial…….the insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest ….. Aid is an unmitigated political, economic and humanitarian disaster”. (3) Wall Street Journal, March 21st, 2009

Over the past 60 years at least $1 trillion of development aid has been granted to Africa. And unfortunately real per-capita income in 2014 is less than it was in the 1970s. “More than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades” (4) Wall Street Journal, March 21st, 2009

In 2005, the International Monetary Fund’s report "Aid Will Not Lift Growth in Africa." concluded that governments, donors and campaigners should be more modest in their claims that increased aid will solve Africa's problems. (5)

Historically Asia was underdeveloped too. Yet various policies by governments to enhance international trade have resulted in many Asian countries i.e. Korea, Taiwan, Malaysia, and Singapore achieving spectacular economic growth and along with it, higher standard of living for its citizens. Dato Kim Tan, the co-founder and trustee for the Transformational Business Network (TBN) wrote “growing up din Asia, I saw the Asian tiger economies that 30-40 years ago had a lower GDP than Uganda or Kenya, transform themselves through enterprise, not through aid and philanthropy.”(3)Paul Kagame, President of the Republic of Rwanda and that country’s first democratically elected president wrote: “There is bad aid and there is good aid. The bad aid is that one which creates dependencies, as we’ve known for a long time now. But good aid is that which is targeted to create capacities in people so that they are able to live on their own activities.… In the long-term they have to depend on themselves rather than depend on aid.”(4) Poverty Cure

The issue to be addressed is whetherforeign aid achieveslong-term growth and development - is it a positive or negative catalyst to economic well being. And the...

Bibliography: 8.  OECD Development Statistics Online, last accessed April 7, 2012
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