Oversees aid by developed countries to developing countries in one of the most controversial topics in public finance and economics. Overseas aid is funds that are given to developing countries to fulfill certain objectives that improve the wellbeing of their citizens. Aid is often provided because the government of these countries is believed to have insufficient funds to provide the essential goods and services that are expected from the government. Several trillion has been transferred from rich countries to poor countries in the last 64 years. The UK is among highest contributors of overseas aid. This paper seeks to assess whether the UK should increase or reduce its overseas aid.
The overall overseas aid has been increasing steadily over the years. However, the overseas aid contributed by Britain has remained fairly stagnant over the four decades. The overseas aid budget as at 2014 stood at 19.92 billion US dollars (OECD., 2016). It showed a slight increase from the previous year where it was 19.13 billion dollars. This paper believes that foreign aid by the UK government should be increased.
Qian (2014) reviews existing literature on foreign aid. The author reveals that there are many studies that have shown that foreign aid has positive consequences. Aid can promote growth in poor countries if they have good economic policies. However, there are critics who argue that foreign aid does not assist developing countries. In fact, it makes developing countries worse in some instances. There is evidence that aid can result in reduced democracy. It can also lead to the Dutch disease. Consequently, it reduces the growth of the export industry.
Foreign aid can be beneficial is it is coupled with good economic policies and strong institutions. The recipient countries should also be held accountable so that they can channel aid to the purposes it is intended. The effect of aid also depends on the reason why the aid was given as well as the type of aid (Qain, 2014, p. 13). Aid to developing countries should be geared towards developing infrastructure, institutions and other mechanisms that will facilitate a free market economy to thrive. If those countries are assisted in developing and growing, they will be able to get out of dependence and rich countries will no longer have to give them funds. Unfortunately, this is not always the case. An analysis of the purposes of aid in 2013 revealed that only 19 percent of foreign aid is channeled to enhancing the economic wellbeing of those countries (OECD, 2014, p. 2). Aid should be channeled through ways that will ensure its efficiency by reducing transactional costs (Easterly & Williamson, 2011, p. 1940). Consequently, a good portion of the funds does not reach the recipients who need the funds.
In conclusion, the overseas aid by the UK has remained fairly constant since the 1960s. This paper proposes that foreign aid to developing countries should be increased. Overseas aid is the lifeline of some people. Therefore, a reduction in aid is likely to result in adverse effects in those countries. However, aid should be coupled with demand for good institutions and policies so that it can be effective. Aid should also be provided for purposes that will allow countries to grow out of their dependence on foreign aid. Lastly, the aid should be channeled through ways that will minimize transaction costs.
Bibliography
Easterly, W. & Williamson, C., 2011. Rhetoric versus Reality: The Best and Worst of Aid Agency Practices. World Development, 39(11), p. 1930–1949.
OECD, 2014. Development at a Glance: Statistics By Region, s.l.: OECD.
OECD, 2016. ODA 1960-15 Trends. [Online] Available at: http://www2.compareyourcountry.org/oda?cr=20001&cr1=oecd&lg=en&page=1[Accessed 13 May 2016].
Qain, N., 2014. Making Progress on Foreign Aid. Working Paper, pp. 1-52.
