Foreign aid and economic development

Abstract

This chapter examines the historical origins of foreign aid, the rationale behind the provision of aid, and trends in the volume of aid. It examines the question of aid effectiveness, by examining the literature on aid and economic growth on one hand and aid and poverty on the other. The economic interest in providing foreign aid may be seen in the provision of tied aid. Tied aid refers to foreign aid that requires that goods and services associated with the aid be obtained from the donor country. The convention of extending aid, particularly after the Second World War, was principally aimed at assuaging the economic difficulties of war-distraught economies and to occasion auspicious channels toward economic rejuvenation. A noteworthy fraction of aid recipients presents limited evidence of economic development: poverty reduction, declining rates of unemployment, and stable income growth. Domestic resource mobilization is rightly becoming a development instrument for generating resources to fund long-term and inclusive economic development efforts.

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