Aid / 31.05.2011

By South Asian We are now in a position, having described the evidence (A Primer on Foreign Aid – 2), to discuss the less obvious dimensions of foreign aid which address issues of whether aid can be effective and under what kinds of conditions. The Effectiveness of Aid There has been much hand-wringing over the disappointing results of aid and many international conferences and meetings have been convened to devise mechanisms to increase its effectiveness. Over time many civil society activists have begun to entertain doubts about their purpose and intentions. It does not seem plausible that some of the leading minds in the world are unable to figure out the basic problems in the aid syndrome, the gross misalignment of incentives, and the vested interests that benefit from a continuation of the status quo give or take some marginal changes. On the contrary, they have come to...

Aid / 30.05.2011

By South Asian With the basic definitions out of the way (A Primer on Foreign Aid – 1) we can move on to the rationale of foreign aid and its results and consequences. Rationale of Foreign Aid The rationale of foreign aid, at least in the beginning, was quite simple. It was believed that there was surplus labor in poor countries while capital was scarce and the ability to borrow commercially was limited. If enough capital transfers could be mobilized on softer terms, the process of development could be facilitated and such development would be in the interest of both the developing and the developed countries. In a nutshell, the rationale was based on the identification of two gaps – this was often called the two-gap model. It was believed that in the early stages of development, domestic savings were not enough to finance the needed investments; and that...

Aid / 29.05.2011

By South Asian Foreign aid is almost always in the news, at times more than others. All sorts of questions keep swirling in the air: questions about its nature, rationale, aims, effects, results, justification, symbolism, and even about its quantum. All through this heated debate the issue remains surrounded by a thick fog of obfuscation; many remain unclear of what exactly is being talked about. In this post, I intend to present a primer on foreign aid. Each of the opinions offered in the following sections can be contested; the aim is not to provide a definitive conclusion but to set the stage for an informed debate that employs common definitions and a shared point of departure. Aid as a Transfer of Resources Since almost every resource can be translated into a monetary equivalent we can simplify this discussion by thinking only in terms of financial transfers. Consider...