SUS207 - Foreign Aid: Exploring Negative Impacts & Alternatives

This essay critically examines the negative implications of foreign aid on developing countries. It discusses how foreign aid can foster dependency and corruption in recipient nations, citing criticisms of the World Bank and the International Monetary Fund for imposing detrimental conditions on loans. The essay highlights how foreign aid can lead to the elimination of state subsidies, potentially harming local farmers, and exacerbate conflicts by incentivizing rival militias. It also addresses the issue of debt accumulation, where rich countries receive more in interest payments than they provide in aid. Furthermore, the essay explores how foreign aid can be used as a political tool, citing examples from Western states during the Cold War and the European Union's conditional aid policies. It concludes by emphasizing the correlation between increased aid and corruption, particularly in Sub-Saharan Africa, and argues that foreign aid often benefits military equipment purchases rather than helping the poor, ultimately hindering local business development. The essay references academic sources to support its claims.

Running head: FOREIGN AID
Foreign Aid
Name of the student
Name of the University
Author note

1FOREIGN AID
Negative Implications of Foreign Aid
Foreign aid refers to voluntary transfer of the resources from that of one country to
that of another country. This kind of transfer is inclusive of flow of the capital to that of the
developing countries1. The foreign aid can be provided in the form of a loan or that of grant.
Foreign aid acts as a large source in relation to the foreign exchange. This piece of work
throws light on why the foreign aid does not work and the negative effects of foreign aid.
There are various economists who have suggested that foreign aid helps in fostering
the dependency along with the corruption in that of the recipient countries. World Bank along
with International Monetary Fund has been criticised owing to the conditions that they
impose with that of their loans on the various countries. Foreign aid paves the path for the
elimination of the state subsidies for the goods that increases the prices of the products of the
consumer2. The giving away of large amount of food can wipe the market for that of the
crops of the local farmers and it can lead to their bankruptcy. Foreign aid can create the way
for conflict in various countries. It can cause the rival militias to fight against each other so
that they would be able to take the advantage of the donated food.
Economists talk about the disadvantage of foreign aid that cripples the developing
countries by accumulating the debt. There are various rich countries that receive a more
amount in terms of the interest payment from that of the recipient countries as compared to
what they provide in the aid. The financial crash that took place in the year 2008 have caused
the western governments to exploit the ability of borrowing the money at that of a low rate
1 Asongu, Simplice A., and Jacinta C. Nwachukwu. "Foreign aid and governance in Africa." International
Review of Applied Economics 30, no. 1 (2016): 69-88.
2 Brown, Stephen, and Jörn Grävingholt, eds. The securitization of foreign aid. Springer, 2016.

2FOREIGN AID
with the help of the aid programmes. The poorer countries are provided the lending at a much
higher rate thus acts as a disadvantage for the poor countries.
Britain has given more of the aids in the form of grants as compared to that of loans.
It helps in emphasizing on the fact that aid is seen as a weapon by Britain. Foreign aid helps
in boosting the economies of the rich countries at the cost of the poor countries3. The foreign
aid policy that is adopted by some countries plays an important part in influencing the course
of the events within the world. It was used by the western states at the time of the cold war in
acting as a vital instrument I relation to war on that of terror.
The European countries has made foreign aid conditional on that of the African
nations and it has curbed their migration to that of Europe. The officials of European Union
has stated that the countries who would work with them would get certain amount of
treatment that acts as a a hindrance on the path of certain countries4. The countries who do
not want to work with them would get a different kind of treatment that would adversely
affect the condition of the countries. The European Union uses aid like a bribe that
jeopardises the future of some countries. China acts as a major player in relation to global aid
industry and it views aid as a method that can help in leveraging the political influence of a
country.
The foreign aid strengthens the corruption in the countries that can be evident in the
Sub-Saharan countries. Sub-Saharan Africa receives a large amount of foreign aid that helps
3 Jones, Sam, and Finn Tarp. "Does foreign aid harm political institutions?." Journal of Development
Economics 118 (2016): 266-281.
4 O'Leary, Michael. The politics of American foreign aid. Routledge, 2017.

3FOREIGN AID
in keeping the balance of the power in hands of that of executive branch of the government5.
It has been found that there is a correlation in between that of increased aid and that of
corruption. Economists have stated that the distribution of the money is not carried out in an
even manner among the population6. It is not made use of for helping the poor people but
mainly used on the military equipments. The countries who receive the foreign aid does not
promote the aspect of local business since they have large amount of “free” money at that of
their disposal.
Foreign aid is indicative of voluntary transfer in relation to resources from a country
to another one. It refers to flow of capital to the countries that are developing. Foreign aid
helps in bringing about corruption of that of recipient countries. There has been criticism of
the World Bank due to conditions that are imposed by them by taking recourse to the loans7.
Economists have pointed out to the fact that foreign aid has a bad effect on developing
countries with the help of accumulation of debt. Foreign aid helps in strengthening corruption
in various countries that can be seen in the case of the Sub-Saharan countries. The foreign aid
which is received by that of the Sub-Saharan countries is instrumental in keeping the power
on executive branch of government.
5 Ahmed, Faisal Z. "Does foreign aid harm political rights? Evidence from US aid." Quarterly Journal of
Political Science11, no. 2 (2016): 183-217.
6 Dietrich, Simone, Minhaj Mahmud, and Matthew S. Winters. "Foreign aid, foreign policy, and domestic
government legitimacy: Experimental evidence from Bangladesh." The Journal of Politics 80, no. 1 (2018):
133-148.
7 Dfat.gov.au. 2019. "Australia's Aid Program". Department Of Foreign Affairs And Trade.
https://dfat.gov.au/aid/Pages/australias-aid-program.aspx.

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References
Ahmed, Faisal Z. "Does foreign aid harm political rights? Evidence from US aid." Quarterly
Journal of Political Science11, no. 2 (2016): 183-217.
Asongu, Simplice A., and Jacinta C. Nwachukwu. "Foreign aid and governance in
Africa." International Review of Applied Economics 30, no. 1 (2016): 69-88.
Brown, Stephen, and Jörn Grävingholt, eds. The securitization of foreign aid. Springer, 2016.
Dfat.gov.au. 2019. "Australia's Aid Program". Department Of Foreign Affairs And Trade.
https://dfat.gov.au/aid/Pages/australias-aid-program.aspx.
Dietrich, Simone, Minhaj Mahmud, and Matthew S. Winters. "Foreign aid, foreign policy,
and domestic government legitimacy: Experimental evidence from Bangladesh." The Journal
of Politics 80, no. 1 (2018): 133-148.
Jones, Sam, and Finn Tarp. "Does foreign aid harm political institutions?." Journal of
Development Economics 118 (2016): 266-281.
O'Leary, Michael. The politics of American foreign aid. Routledge, 2017.