Introduction
Aid refers to voluntary transfer of resources mostly financial from one region to another that is deemed deserving; this is normally an act of philanthropy. This type of assistance exists even in a larger scope with nations often helping each other. In such a scope, it is thus defined as the voluntary transfer of resources from one country to another with the sole objective of the transfer being to benefit the recipient country. In the past financially stable countries mostly from the west have provided financial help of different forms to their poorer counterparts especially in Africa, the manner in which the dispensation of the aids are conducted in these countries have often given room for speculation with lots of criticism on the entire process (Michalopoulos & Sukhatme 1989). Some of the critics claim that the aid given to these poor countries are some of the main reasons as to why the countries can not easily develop while those who are for the programs claiming that they contribute to the growth and sustainability of life in these regions.
The aid given to a country would come in different forms key among which are: food aid, this is when there is an acute shortage of food in one region of the world. A country that is with surplus decides to give a portion of its reserves to the deserving country. It normally is in the form rations distributed to the deserving populace. Sector wide approaches (SWAPS): this is when a donation is given to improve the services that are offered in a given sector of the economy in a country that is determined that there is greater lack. Most of these have always been in the form of money given to finance the education sector so as to improve the quality of education or to necessitate the provision of water in the arid and semi arid areas. The other form of help that has often been provided to most nations nationally ids the budget support. This is when loans, grants and donations are given to the poor government so as to strengthen the financial system of the recipient nation. These and many other types of aids have in the past been given to countries mostly in Africa and from these provisions there have risen lots of debates on the viability of the entire aid dispensation process. Critics continue to criticize the manner in which the aids are offered and the net effect that they have in the receiving economies (McGillivray & Morrissey 1998). Some of these criticisms are discussed below:
Aid programs have been determined to bring an effect of over dependence. This is an occurrence in which the benefactors of the aid programs do not undertake any productive activity owing to the belief that there would be a donation that would sustain them. This has thus led to poverty getting more rooted in these countries. Those who share this idea call for such programs to be stalled so that the citizens of such nations work to sustain themselves.
The other idea that has led to lots of negative criticisms of the id programs is that they are used by the donating nations to impose sanctions on the receiving countries. The developed economies in the past have used the provision of aid to: reward loyalty, poor nations that have formulated policies in their poor economies to favor the strong economies would often be considered by the strong economies in the form of both financial and material aid. Aids are also used to influence the nations to carry out an undertaking as required by the strong economies, they are normally placed conditions that for a poor economy to receive a given form of aid then they would have to comply a number of set criteria. Finally the strong economies use aid to punish any acts of disobedience, should a weaker economy carry out an undertaking that never impressed a donor country or against the directives of the donor country then the donor country would fail to disburse the aid and ion the process the poor economy would suffer the consequences and learn to operate within the set conditions of the donor countries. It is therefore such acts that have been negatively criticized with the critics referring to such tendencies as neo colonialism. They call for the abolition of the aid dispensation and should a country feel philanthropic then the process should be free of conditions and carried out of good will.
In as much as these negative criticisms continue to take foot within certain quarters, there are those who believe that the aids given to poorer nation are in line with the development of the nations and are of positive effects. Some of the positive roles that the aids play as raised by those who are for the programs include:
Sustainment of life, life is of incomparable value and should never be placed on any balance, further more the support of a life is a responsibility that should be carried out by all individuals regardless of geographical demarcations. Food aids that the stronger economies give to the poor nations are normally in most cases aimed at sustaining life. Droughts hit parts of the horn of Africa in Somalia a nation that has been rocked with a series of civil wars and to this day there is no an effective government in the region. The effect of the droughts are therefore far reaching as the natural watering points dry up and the fields produce no food for the populace. Lots of lives are therefore endangered and are at the brink of demise. It as a result becomes the responsibility of the entire world to sustain these lives and these are in line with the declaration of human rights and the united nation’s chatter. Those who hold such humanitarian perspectives therefore call on the international community not to let any life be lost as a result of hunger in the current time when certain nations boast of surplus. These life sustaining endeavors have in the past seen individuals come together independent of government influence and contribute substantially to the very course in different regions in Africa and Asia.
Most countries in Africa were subjected through long periods of civil strife with lots of wars. In such times those who suffered loss were the children and women, left homeless and destitute the children had no source of livelihood. This has accounted for the rise of street families, especial group of the population that no body can account for; their large populations have overwhelmed the local government as they continue to live in deplorable conditions. In such circumstances it becomes the obligation of the international community to offer quality life to such people. Currently there are aid agencies with similar objectives that have resettled quite a number of street families and developed children homes for the homeless children. All these are carried on humanitarian and the life sustenance basis (Mankiw, Romer & Weil 1992).
Aid programs improve the education level of these countries thereby directly contributing to their development. Most of aid programs in Africa are aimed at the education sector, lots of aid agencies comb the continent Africa offering scholarships and alternatives to education through the setting up village polytechnics and these improve on the literacy levels of the people in these regions. Such aid organizations that have spear headed such programs include the Plan International an aid organization operating in the east and central Africa region together with some parts of Asia, have alleviated the literacy level of so many poor and destitute children in these continents. With a literate population these countries stand a better chance of developing a lot faster than when left to map out their development on their own.
The deserving nations normally have a great problem of unemployment, a larger apart of the population are jobless with the civil service only offering very limited positions for employment which are also normally apportioned on ethnic grounds. This leads to a great capable part of the work force out of employment (Massell, Pearson & Fitch 1972). When these aid agencies get to these countries, they offer more employment opportunities to the populace of the regions. The aid agencies need premises and these get constructed by the readily availably workforce and this creates more market for the resources that are available in the country. The education projects employ teachers from the countries and these are coupled with the fact that the very project is a knowledge impacting one. This results in amore enlightened population who are capable to seek employment even on the international job markets. The large number of drivers and guides that the aid agencies employ result in a boost to the local economies as more people are made economically independent capable of accessing the market
The aid agencies lead directly to infrastructural development, they build homes for the children which in most cases are built in the international housing standard, once a children’ home has been built in as give region, the means of access are therefore normally created and these include roads which get upgraded solely as a result of the homes (McGillivray & Morrissey 1998). They build offices and premises too in these regions and this boosts the construction industries in the regions.
The relationship that exists therefore between growth of these recipient countries and the aid given to them is directly promotional in that more aid organization results directly into increased growth and development. The growth and development witnessed as a result of the aid agencies presence in a given region results in increased investment by the local populace. The benefactors, who receive either the health services or education programs, get to live better lives that are self sustaining through investment. Those employed by the agencies would need some form of housing and they would require some of the basic social amenities, it would thus present lots of investment opportunities for the locals.
Effects of aids on economic growth
The Harrod Domar model
This is a model that tends to explain an economic growth of a country in terms of the savings and productivity of capital. This theory purports that there is no absolute need for an economy to have a balanced growth; mathematically it runs the following formulations: (Khan & Hoshimo 1992).
Let Y represent out put which equals income and let K represent capital. S is the total saving while s is the saving rate. I represents investment while r the rate of depreciation of the capital stock.
The theory makes the following preceding assumptions:
- Y= f (K) output is a product of capital stock.
- f(0)=0 capital is necessary for out.
Aids given to the needy countries are applicable in this very first assumption. The constant f would represent the remuneration given to the employees who would otherwise stay unemployed. Should an aids agency operating in a given region employ an average of 250 employees who earn $ 20,000 annually, this would result in:
- Y=250*20,000
Y= $ 500,000 within an operational duration of one year, an amount that would be directly go to the economies of these countries. The second equation argues that there can never be any out put without capital. This is an argument that is very factual as this would normally represent what goes on in these poor nations without the input of these aid agencies that operate in them. There is normally to output in a big portion of the population given that fact that they are normally jobless and without any source of capital.
sY= S=I The product of the savings rate and output equals savings which equals investment.
Therefore K=I-rK The change in the capital stock equals investment less the depreciation of the capital stock. The out put of a half a million dollars would result in either savings or investment of equal measure
The extreme bonds analysis
Countries that receive the aids given to them by donor countries have their economies respond differently to the presence or absence of the aid fund. In one way or another, the funds given by donor countries affect these economies. This section therefore offers the analysis of the role the capital generated from aid funds plays in the economies and hoe the economies react in their absence (Abdiweli & William 2009). This analysis relies in one overriding formula which is:
- Y= Constant + I + M + Z +u
- Y = real per capita GDP growth, or the share of investment in GDP;
- I = a set of core variables always included in the regressions;
- M = the variable of interest (i.e., Effective Development Assistance (EDA) and Official Development Assistance (ODA);
- Z = is a vector of up-to-three possible additional explanatory variables of growth,
- u = a random disturbance term.
This formula is a lot more direct as each and every other variable in the equation is directly proportional to the outcome which is the real per capita GDP growth. With increased donor funding to the poor countries in Africa and other parts of the world, the funds are normally put into different uses some under the direct supervision of the funding bodies as they operate some of the agencies themselves. These activities result in increased levels of employment which in turn results in more savings by those employed by these agencies, the increased investments and savings results in an improved gross domestic product.
On the other hand, a country that really needs some assistance but because of any other reason what so ever goes without, would experience low levels of savings and investments by its populace. This eventually results in stagnation in the gross domestic product or depreciation in the gross domestic product (Levy 1988).
Conclusion
Aid allotment to developing counties just as shown in the two models above go along way in improving the economies of the countries that receive them. However in the recent past there has been a tendency of the donor countries especially America and the western countries tiring off and thus discontinuing their support top the deserving countries.
Aid fatigue is an occurrence that is normally likely to be felt by the donor countries; it is the tendency of a donor country to tire off from constantly issuing donations or grants to the developing countries. This can result out of pressure from within the countries to convert their effort on more internal problems that the country would be facing. This coupled with ineffectiveness of management on the parts of the deserving countries to generate more resources from the allocated funds has often led to the withdrawal of foreign aid. Most of the aid funds given to these countries should be used effectively to generate more income to the general population, but those who the money get to these countries through, especially political leaders have often embezzled bigger portions of the money leading to more deplorable condition of their populace.
This should however not make these donor countries shy away from helping the deserving countries, the better management techniques that have been determined to work is when the donor countries get involved in an one on one interactions with those who the aid are meant to reach through the operation of orphanages and schools that are of better good than simply sending money to people one do not see or know.
Currently there are quite a number of aid agencies working in Africa and this is a part from the assistance that exists bilaterally between countries. The increase spread of the HIV scourge in the continent has driven a bigger portion of the populations down in Africa to the verge of extinction. Some of the agencies offer cheaper medical services while other are concerned with the academic growth of those who for one reason or another have been left de4serving of the service.
Below is list of some of the aid agencies that ere very vibrant in their operations in Africa. All the ones below have been in the continent for over ten years. Some others that do not make it to this list include those that were formed and survived for a short period of time sand many others that operate within specific regions in the individual countries thus their effects are not felt on a larger scale.
Aids given to deserving countries is normally worth the while and they help fast track the process of development in the recipient countries. All that is required is some more effective policy placements so that there does not develop an aspect of over dependency or misappropriation of the donor fund as has been witnessed in some of these countries.
Reference List
Abdiweli K & William, J 2009, How Robust is the effect of Foreign Aid on Growth, Niagara University Press, Niagara.
Khan, W & Hoshino, V 1992. Impact of foreign aid on the fiscal behavior of LDC governments. World Development, New York.
Levy, V 1988, Aid and growth in sub-Saharan Africa: the recent experience, European Economic Review, London.
Mankiw, G, Romer, D & Weil, D.N 1992, A contribution to the empirics of economic growth, Quarterly Journal of Economics, vol. 9 no.35, pp.253.
Massell B.F, Pearson S.R &Fitch J.B 1972, Foreign exchange and economic development: an empirical study of selected Latin American countries. Review of Economics and Statistics, Pearson Printers, vol. 35 no. pp.116.
McGillivray, M & Morrissey, O 1998, What Do We Know About the Impact of Aid on EconomicGrowth, paper presented for the CREDIT 10th Anniversary Conference, 17September 1998,Centre for Research in Economic Development and InternationalTrade, University of Nottingham, Nottingham.
Michalopoulos, C & Sukhatme, V 1989, The impact of development assistance: a review of the Quantitative evidence. In Aid and Development, Krueger AO (ed.), Johns Hopkins University Press, Baltimore.