- What are the potential benefits and problems associated with providing foreign aid to countries? How might foreign aid be helpful or harmful according to the two theories discussed in the paper? What does the evidence suggest?
It is a common assumption of Benign Dollar Hypothesis that when poor countries are supplied by financial aid from rich countries, they grow economically and alleviate the living conditions of their people. However, the assumption has been falsified by Bauer (1972, 2000) as in his view, foreign aid does not contribute towards economic alleviation of any poor country; rather it prevents any economical progress in the country all together. Although the process of financial aid portraits a positive image by being transparent, slippage-free and regardless of self-interest; this is more of a Destructive Dollar Hypothesis. The truth is that there are several political actors involved in every process of aid transfer, both in donor and recipient countries, which regard their self-interest. For example, donor countries may bind the recipients to engage in long infrastructure projects, which are totally unproductive for them and thus waste money of both donor and recipient. Thus the aid is distributed inefficiently and does not produce any positive impacts over recipient’s economical conditions. The competition amongst the donor countries in ‘donating’ also makes the process reckless. Corruption and self-interest amongst the political agents of recipients makes aid a tool to preserve their powers only, leaving the nation into the same poverty crisis. The authorities become centralized; gain more power to rule and eventually breaking up in any kind of uprising against them. This further propels the country towards much bad economic crisis. Therefore, evidences suggest that foreign aid can only affect positively in those countries that have good internal economic policies. Otherwise, it is just a waste of money which pushes the recipient developing country towards being poorer and economically unstable. In fact, countries with good economic policies do not require foreign aid; rather their policies would alleviate them from poverty. It is a matter of concern that foreign aid is most likely to provide to those countries that have poor or no economic policies of their own; thus it merely affects them. Also, according to Ovaska (2003), 1% increase in foreign aid leads to a 3.65% fall in the growth rate of developing countries’ GDP per capita annually. Therefore, many other authors along with Bauer have stressed upon that fact that foreign aid is harmful for any developing countries’ economical progress and it induces several other problems in the recipient country, like weak leadership, corruption and low quality of bureaucracy. It is like a ‘curse’ upon them that has harmful impacts over the institutions of the recipient country as well.
- According to the article and your own thoughts, why are some countries relatively poor while others are relatively rich?
As the article suggests, any country does not become rich with the help of foreign aid. It is its internal economic reforms, a sincere and free from corruption leadership and focused implementation of policies that make them stronger, developed and rich. Those countries that are relatively poor and developing have many factors in this regard. An unstable political environment, dishonest leadership, unfocused and inappropriate planning and its implementation all count towards their economic decline and dependence upon other countries. Even though they have been provided by aid from rich countries, it does not make any positive impacts of them due to discrepancies in the internal system of these countries. Hence, they remain to be relatively poor than the rich countries and do not grow economically.3) What do you think? What is the best way to assist countries to improve the standard of living in countries around the world? Is there anything that can be done?
Economic development is necessary for any country to be stable and to get rid of the foreigner influence. If a developing country has enough potential for economic growth, it must be supported and bolstered by foreign communities as well. In my view, providing direct foreign aid without any check and balance is not the solution of the problem. However, it could be done that such developing countries are provided with an economic reforms plan, according to their needs, natural resources and geographical location. For example, economic necessities of any developing country in Asia would differ than a country in Africa. Thus following examples of those who were initially poor in the region, but gradually turned themselves into an emerging one could bring revolution in the practicing country itself. Economic experts should study about all the relative aspects and then produce an economic reform plan for the country to develop and progress. If foreign aid is to be provided, it must be with check and balance by foreign organizations so that the needy and deserving sector would receive that and it would not get lost in the hands of powerful political agents. Also, privatizations and economic freedom towards international trade can improve the standard of living in developing countries. Private property is of prime importance in a country since it cannot be controlled by state agents; thus such properties could contribute towards the economic development of a country much better than any foreign aid. In this way, any developing country could progress and can make itself a developed one.
References
Leeson, P. T. (December 01, 2008). Escaping poverty: Foreign aid private property and economic development. Journal of Private Enterprise, 23, 2, 39-64.
