Free Effectiveness of Foreign Aid Essay Sample

In this paper, the main aim is to find out how the students feel about the impact of this foreign aid in the developing countries. This paper shall also look at the factors that have got an impact on whether this aid becomes useful and effective, or it does not. The research question that this study intends to answer is: "What are the student's perceptions on the effectiveness of foreign aid in developing countries?"

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In the previous years, there have been a lot of discussions and arguments on the topic of the importance of foreign aid how effective it is on the developing nations. This topic has attracted a lot of debate and criticism from both the educated and the un educated. One school of thought states that foreign aid is integral for an economy to grow (Sachs, 2005) while on the other hand, Easterly (2003) argues that aid's effectiveness is conditional on a number of factors including the economic and institutional infrastructure of the recipient government, and could have no effect on the economy. Riddell (2007) defines Foreign aid as 'the resources- physical goods, skills and technical know-how, financial grants or loans that are transferred by donors to recipients' (p. 17). Developing countries are defined by World Bank as 'countries with low or middle levels of Gross National Product per capita' (Dollar & Pritchett, 1998). Furthermore, Riddell (2007) defines Humanitarian and Crisis aid as a short term foreign aid provided for emergency disasters, whereas Official Development Aid defined as a long term foreign aid provided for the development of a country or its particular sector (for example agriculture).

According to Lumsdaine's (1993 as cited in Sachs, 2005) study, governments provide foreign aid according to the general willingness of the donor country's public. This is however not how German sees it. German (1996 as cited in Riddell, 2007) raises issues that this correlation link is not strong enough as it is taken to be. There is a visible gap in the secondary literature regarding public's perception on the issue of foreign aid's effectiveness. The purpose of this study is to investigate student views of a multi-cultural range. The students are divided into two groups of developing and developed countries. In addition, this study aims to look at perceptions that can highlight various barriers and factors that can have an impact on the effectiveness of foreign aid. This study can be useful for academic research groups and think tanks that aim to study the general public's opinion on foreign aid. For example Chatham House, a British think tank that studies the issues and projects relating to aid and its implementation by the British government, locally and internationally.

To begin with, this research paper will review relevant secondary literature relating to the concept of Foreign aid in developing countries and its effectiveness.  This is important as it will help build a strong basis for the arguments that will be put forth. Previous researches have been done on this topic and it is of great importance that the results of these researches are looked into. This will shed some light on the topic before hand. After that, the study will then elaborate on the methodology used to conduct primary research of student perceptions through a questionnaire. These questionnaires will be distributed to willing participants, and the data will be collected. After this is done and the study has acquired the relevant data, it will then discuss the relevant findings in the light of the following hypothesis:
 "Students think that foreign aid has a positive impact in most developing countries, however one of the barriers to its importance being felt is corruption"

This Hypothesis will then be analyzed. This will be done according to the primary research findings and the relevant secondary literature. Analysis of data is important as it will help us understand the situation better and also deduce what is contained in the results. It will thus be proven to be the truth or not whether financial aid is important and effective in the developing countries. Finally a relation of this data will be drawn, looking into the results and comparing them. This will then be related to the conclusion to form a sound and academic positioning on the issue.


1. Aims of an effective foreign aid program

Different studies and research have found a number of aims in a developing country for the foreign aid. Papanek (1983) says that the main aim of foreign aid is to kick off the expanding of the economy. He goes ahead to argue that there is a positive relationship between aid and the growth rates within an economy.  Countries that are still developing, especially those in the third world, often require some help from those that have developed already. This aid that is given to these countries goes a long way in helping them kick start their improvement in the national economy. According to a research that was done by Crosswell (1999) twenty six countries out of the forty that have were lucky enough to get aid in the period of 1965-90, had been before that developing countries. The growth rate for these nations increased in a very positive manner after they received the aid. To date, the effects of that financial aid that was given to these countries can be seen, as they have come to become strong nations compared to how they were previously. Sachs (2005) brings the topic of poverty lessening as one of the important plans of foreign aid. Poverty levels in a nation are as a result of lack of capital in that specific country. Countries normally find themselves thrown deeply into debts and their economy even going to the negative side of the scale.

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According to Sach, this can be solved by financial aid from other nations that are in a stable economy. However, this aid has to be directed to the right people in the nation. He says that the only way this aid can be of help in bringing down the high levels of poverty within a developing nation, is if it is implemented through the NGOs which work locally within communities instead of focusing on a macro level. The NGO's understand the problems of the inhabitants of a nation from the grass root level. Solving these financial problems from the community level will be of major help toi the citizens of that country. Sachs (2005) argues that foreign aid can help achieve the Millennium development goals (MDGs) which focus on eight goals set by the UN to be achieved by the year 2015 by all the member states of United Nations and various development organizations. These include eradication of hunger, disease and poverty amongst others. The realization of these goals is what will make the whole world a better place. These goals seek to make each country out there to be stable in their own economy, so that all mankind in the universe can have a good stable lifestyle, free from hunger and being homeless. Another importance of the foreign aid as indicated by the research is to come up with immediate and quick humanitarian and crisis aid to help places that are in conflict or natural disasters (Riddell, 2007).

Riddell suggested that if we could come up with a short term aid and do it with efficiency and accountability, in the same region we could also be successful in coming up with a long term aid. Several short term aids are important in giving the guidance as to what the long term aid should be. This method of handling each huddle step by step will help identify what is hindering the development and as that is overcome, the realization of the long term goals kicks into place. However, scholars debate on the issue of foreign aid with a different view. They argue not about the significance of the plans for foreign aid, but instead look at if at all foreign aid is effective in realizing these aims in the developing nations. This foreign aid is often given with a specific purpose behind it. However, not all nations are able to benefit from this aid. In some nations, it gets swallowed within the big guns in the countries and they benefit themselves alone. According to the scholars, this should not be the case at all.

2. The schools of thought.

One school of thought is the belief that aid boosts up the economic growth in a nation. The thought too is that, aid is necessary for the development and improvement of poverty within a country and is hence effective (Papanek, 1983). The belief of these thoughts has its backing in the sense that, providing financial aid to a nation will help it come out of the hole that it had been thrown into by its debts. It is thus believed that this aid will help provide jobs, build new industries, provide a platform for import and export of goods and as a result it will boost the economic growth of that nation. Contrary to this, the Revisionist school of thought believes that aid has little or no effect on the economic growth of a nation. It believes that it is unfavorable in its effects for some nations, thus making it ineffectual in its application (Easterly, 2003). This aid has been given to some countries as a form of making them get devoted to the donor nations. Some of the donor nations are not genuine in their donations of financial aid and as a result, they start making demands as a form of showing a return in favor for their help. This has often resulted in conflicts between nations. Perkins (2006) highlights a third view which points out the balance between the two extreme point of views on the issue and states that the effectiveness of aid is dependent on various factors in relation to the donor government, the recipient government and the implementation of the of the funds within the nation. Therefore, each country case is unique and makes it difficult for academics to compare the results to other nations as a case-study. This is what makes the basis for the research on this issue so contentious and each day the research takes a whole new dimension.

3. Factors that determine the effectiveness of aid.

McNeill (1981) argues that the lack of maintenance by the recipient government of the projects completed by the aid funds is one of the factors that make aid ineffective. This is a waste of the funds. Dollar & Pritchett (1998) cited an example of Tanzania where approximately two billion dollars were used by the government to build roads, taking up to more than twenty years to complete. This adversely effected the quality of the roads which were not maintained while completion, thus leading to the wastage of resources and the funds for development. Another factor highlighted by Sachs (2005) is the lack of desire for reform within the recipient governments and the commitment to change. Moreover Riddell (2007) argues that governments that are elected in a post-conflict time are more inclined towards reform and are suitable for implementing aid within the country. Sachs states 'aid helps the good government to survive long enough to solve problems' (2007, p.512). Lack of monitoring (McNeill, 1981) is identified as another factor that determines the effectiveness or the ineffectiveness of aid. McNeill argues that when there is a lack of accountability and no monitoring of the aid funds by the recipient and donor nation, Corruption and mishandling of funds could take place. Perkins et al. (2006) further argues that this causes wastage of funds and resources. Both Ranis (2006) and Perkins (2006) state that the Principle-agent factor as also a determinant. Perkins et al. (2006) says that the relationship between the donor and the recipient should involve commitment from the two sides, as well as monitoring and accountability of the projects being undertaken. In addition to that, Riddell (2007) argues that multilateral aid should be preferred to bilateral aid. This will help in avoiding political and strategic interests of the donors because the transaction is carried out by another agency, which helps to solve the principle-agent huddle. Riddell further states that charity organizations and non governmental organizations (NGOs) play a significant role in improving the effectiveness of foreign aid, as it reaches out to the local communities.

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Another factor identified by Riddell (2007) and Perkins et al. (2006) is the Law of diminishing marginal utility of aid, which states that as the aid increases, there comes a point where the benefits start to diminish and then finally stop. In addition, Perkins et al. (2006) identifies that at this point the absorptive capacity of the country has reached a limit and cannot therefore take in any aid. Riddell (2007) states that any aid offered after this point will be wasted. However, Chauvet & Guillanmont (2002, as cited in Riddell, 2007) argue that this is temporary and not a very viable excuse to render aid as ineffective in its purpose.   The same argument is put forward for the Aid Volatility factor (Riddell, 2007). Fungibility (Perkins et al, 2006; Riddell, 2007; Dollar & Pritchett, 1998) is use of resources by the recipient government for a purpose other than it was taken for, i.e. non development projects. Perkins et al. (2006) argues that fungibility can be avoided if monitoring of the funds is conducted by both the donor and the recipient government. Dollar & Pritchett (1998) cites the example of Pakistan during 1980s, where aid fund was used by the government to train soldiers to fight the covert US-Soviet war.

4.  Public Opinion/Perception.

Lumsdaine (1993 as cited in Sachs, 2005) highlights the positive correlation between the general willingness of the donor country's public expressed in their opinion and the amount of aid given by their government. The public always hates to see fellow men in other countries suffer while they have got more than they need in their own homelands. The public is always seeking to push their government to provide financial aid to other countries that are in turmoil and they do this with the best interests at heart. The government however, for most of them, always tends to do this with political interests. But this is not the case all over.  German (1996 as cited in Riddell, 2007) feels that way because, even though this relationship is of doubt it is taken as a strong one (p.110). Ranis (2006) further argues that a positive perception of the general public of a Donor country, relating to aid, can help the government in making strong aid donations to deserving countries. This however it is not the only factor that affects the amount of aid donated by the country. Moreover Sachs (2005) highlights the importance of the role of academic research think tanks and NGOs which can act as a link between the government and the general public by conducting researches and projects which highlight the public's perceptions on various government policies and affairs.

5. Reasons for giving and receiving aid.

Randel & German (1996) highlight various reasons as to why aid can be given including for reconstruction due to damages by natural disasters and conflicts and to support an economy during a recession. This aid is normally provided especially to help the affected country cope with the difficulties that come its way due to the disasters. Countries hit by natural disasters are often thrown into turmoil as the government in place is not fully able to administer the required ruling and providing guidance for its country. Dollar & Pritchett (1998) cites the example of renovation of the historical Walled city of Lahore, in Pakistan as an example of a project funded by foreign aid. Riddell (2007) argues that scholars believe that the foreign aid to support an economy suffering from recession is the most important reason to donate; however in his opinion aid for emergency disasters like the Tsunami are very important forms of aid, as it is directly related to the risk of human lives. Financial aid should not just be because of monetary gains for the country in need of help, it should be able to make humanity live in comfort and in extreme times, if it is for saving lives it is even better.

Dollar and Pritchett (1998) argue that aid failed in Tanzania because of the lack of monitoring of the projects funded by aid. Riddell (2007) cites the example of Pakistan during the 1989 when foreign aid was used by the recipient government for a purpose other than it was taken for, i.e. non development projects. However Perkins et al. (2006) argues that a condition upon which aid is effective is dependent on the relationship between the donor and the recipient governments and the policies of the countries during the time at which it is implemented. Furthermore, Riddell (2007) cites an example of South Korea where foreign aid was effective during the 1960s.


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