Growth and Development Strategies Part 2 (Aid, etc) Flashcards
Foreign Aid
- Gifts or loans made to developing countries from official or unofficial sources
- Does not include hard loans (loans made to developing countries at market rate)
Humanitarian Aid
- Emergency assistance provided in response to natural disasters or crises
- Gifts and not repaid
- Grants, food and medical aid
Development Aid
- Long-term assistance aimed at promoting economic development and reducing poverty
- Concessional/conditional in nature
- Concessional long term loans, project/programme aid, comodity aid (Bangladesh)
Debt Relief
Paritla or total remission of foreign debt, especially those owed by low income countries
Why is aid given?
- Natural disaster/wars/emergencies
- Help achieve development
- Create/strengthen political/strategic alliances
- Fill the saving gaps, encourage investment
- Improve technology
- Get rid of access goods
- Strengthen military ally
- Reward for desired behavior
Arguments for aid
- Moral obligation to transfer wealth → strengthens global welfare and solidarity
- A source of foreign exchange for LEDCs - buy capital equipment from abroad
- Can act as valuable supplement to the LEDCs domestic savings
- Can provide technical assistance (engineers to build infrastructure)
- Emergency aid in times of war, natural disasters and other serious problems.
Arguments against aid
- Distributed poorly, doesn’t go to those who need it - aid to Isreal for military
- Aid can be squandered by inefficient and corrupt governments.
- Aid benefits the donor more than the receiver.
- Tied aid
- No clear correlation between aid and development.
- Dependency is created = less innovation, and a welfare mentality
- Given for political reasons and not where the need is greatest
Institutional change
- improved access to banking (microfinance and mobile banking)
- increasing women’s empowerment
- reducing corruption
- property rights
- land rights
Improved access to banking
- Improving access to banking = improves access to credit
- Lack of access to credit → slows investment → hinders innovation and skills development of the workforce.
- Firms can’t access to credit → cannot increase the production and productive capacity of the economy - thus helping with employment.
- reduced investment → less innovation → lower productivity → fewer jobs
Microcredit
Small loans given to poor borrowers who lack collateral, stable jobs, or credit history.
Credit
borrower recieves somehing of value now and will repay the lender in the future, with interest
Microfinance
- form of FDI
- small loans given to LEDC individuals for self-employment and income generation.
- can occur domestically or from abroad
Mobile Banking
A service provided by bank that allows customers to do bank transactions remotely
E.g. M-Pesa in Kenya
Increasing women’s empowerment
- Reduce excess female mortality - increase health care
- Close education gaps
- Improves access or women to participate in economic activities
- Limit continuation of gender inequality across generations.
Ghana, Rwanda
Reducing corruption
- Invest in high levels of transparency
- Reform institution - make tax
- Build a professional civil service - increase police pay
- Keep pace with new challenges as technology and opportunities for wrongdoing evolve
- Strengthen anti-corruption measures through company blacklisting and legal enforcement.
Example: Colombia, Costa Rica, Paraguay
Property rights
The ability to own something. To use something, to earn income from and transfer to others
Land rights
- Ability to obtain, use and hold land at their will
- Strategies include: land reform, policies for dealing with sensitive issues
- Challenges: political and cultural differences, dysfunctional legal and institutional facilities
What are drawbacks of institutional change as a development strategy?
- Unpopularity for those in power (corruption)
- Long run rather than short run
- Without political support, can be stopped before able to have any positive effect
Bilateral Aid
Aid from one country to another
Multilateral Aid
Aid originating from more than one country group such as the world bank and IMF
Official Development Assistance (ODA)
- foreign financial assistance from donor governments rather than NGOs
- bilateral
Non-governmental organisations (NGOs)
- Unofficial aid
- Multilateral
- primarily on a small scale, usually to meet
specific developmental objectives
Multilateral development assistance
Aid goes from donor → intermediary organization → recipient countries.
9A The World Bank Group
- International Bank for Reconstruction and Development (IBRD) - 1945
- Conditional – requires policy changes
International Finance Corp (IFC) - 1956 - International Development Association (IDA) - 1960
- Multilateral Investment Guarantee Agency (MIGA) - 1988
- International Center for Settlement of Investment Disputes (ICSID) - 1966
9B International Monetary Fund
- The IMF
- Provides multilateral development assistance (MDA)
- Offers short-term non-concessional loans
- Helps countries with international payment difficulties
- Initially focused on LEDCs
Advantages of MDA
Disadvantages of MDA
Sources of Economic Growth
