Foreign Aid & Development Assistance (DP IB Economics)
Revision Note
Foreign Aid
Foreign aid is often offered to developing nations in several different forms, including:
Humanitarian/development aid
Debt relief
Official Development Assistance (ODA)
Non-governmental organizations (NGOs)
Contextual factors can influence the effectiveness of any of these and some that work well in one context may be less effective in another
1. Humanitarian/development aid
Two of the most common forms are grants & soft loans
An Evaluation of Humanitarian Aid
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2. Debt relief
Many developing nations have borrowed significant sums of money in the past which have to be repaid (with interest) over a long period of time
The opportunity cost of these repayments is significant & often includes
Loss of infrastructure development
Inability to create a welfare system
Investment in human capital/education
Countries began to default on their loans in 1982 (Mexico was the first) & this has led to the restructuring of these loans to make it more affordable
More recently there has been significant progress in writing off the entire debt of the most heavily indebted poor countries (HIPC) so that they can focus on building their economies
An Evaluation of Debt Relief
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3. Official development assistance (ODA)
ODA can be bilateral (from donor government to recipient government) or provided through a multilateral
development agency, such as the United NationsTwo of the most common forms of ODA are grants & soft loans
The United Nations has set a target for more economically developed countries to spend 0.7 per% of their gross domestic product (GDP) on ODA to help countries eliminate poverty and become developed
An Evaluation of ODA
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4. Non-governmental organizations (NGOs)
These are typically voluntary, community-based organisations which do not aim to make a profit but seek to meet a need or provide a service
They operate locally, nationally and/or internationally
With a community based emphasis, they are able to
Engage in small scale projects giving control to community stakeholders
Draw on local skills
Encourage sustainability & remove the need for aid
Tackle environmental sustainability using local knowledge & resources
NGOs have played a major role in many LEDCs and their aid often comes with fewer conditions or expectations than ODA
Examples of NGOs include Oxfam International, Save the Children International and World Vision International
An Evaluation of NGOs
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Multilateral Development Assistance
Multilateral organisations are made up of member governments from around the world
They pool their resources together which enables large-scale development programmes to be funded
The World Bank and the International Monetary Fund (IMF) play an active role in providing multilateral development assistance
An Explanation of Organisations that Assist in Development
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World Bank |
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International Monetary Fund (IMF) |
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