Foreign Aid and Dictatorship - Research Paper Example

Download file to see previous pages... Foreign aid also has a positive impact on the democracy of a country, which is one of the economic development pillars in developing countries. Countries experiencing high levels of injustices and poverty are often the recipients of aid, which is directed at saving the lives of those individuals, as well as improving the economy of that country. Public development projects like health centres, schools, and roads in some developing countries, depend entirely on foreign aid, whether in form of grants or loans. The grants and loans form a basic part of some country’s budget allocation, which signifies their economic importance. Accordingly, foreign aid helps recipient countries to improve their living of standards, but on a short-term basis. Besides directly benefiting the government of recipient countries, foreign aid also benefits the private sector and the families in those nations. Families and the private sector access aid through foreign direct investment and remittances (Lahiri 2007: 223). This kind of flow of aid resources may adversely affect the economy positively. Nonetheless, there is clear evidence of a cause-effect relationship between aid and development (economic and otherwise). There has been criticism revolving the issues of aid to developing countries, especially to African countries. Economists argue that inflow of aid affects a government’s consumption instead of investment (Sogge 2002:11). This is common in cases where a government has access to unconstrained aid funds, resulting to increase in government consumption that has a negative effect on the economy of that country. Considering the fact that foreign aid constitutes a major portion of developing countries’ revenues, there is a possibility of a “windfall” which may generate rent-seeking activities, corruption, and even civil wars. A prime example is World Bank’s Chad-Cameroon Oil Pipeline aid, estimated at 180 million USD. To avoid corruption, World Bank gave directives to Chad that the funds should be kept in offshore accounts, and that the purposes of the aid funds were strictly for infrastructure, health, and education (Lancaster 2007:27). Problems began after the government started receiving oil revenues in 2004, with the first bonus received from oil companies, 4.5 million USD, purchasing weapons for the Chad government. In total, close to 12 million USD was directed towards purchase of weapons, leading to suspension of the aid by the World Bank. Another case is Somalia. Experts state that the civil war in the country was a result of different factions’ desire to control the huge food aid to the country (Williamson, 2009). Recent studies highlight several mechanisms that explain why windfalls of resources in recipient countries lead to a decline in their economic growth. All the mechanisms indicate that individuals engage in rent-seeking activities in efforts to appropriate portions of the resources, which lead to a decline in the economic growth (Bealinger 2006: 63). The theories also incorporate the idea of commons, which describes the effects of the aggregate capital stock common access that foreign aid induces. In summary, foreign aid has a voracity effect: which states that if powerful groups exist in an inter-temporal ...Download file to see next pagesRead More